The economic reset is now in place as global markets in emerging nations slow, general commodity prices devalue and the strong dollar persists. In my travels and engagement with top agriculture producers and industry stakeholders, I see adjustments in progress. The reset cycle will bring opportunity, but your business must be aptly positioned. Good managers know how to play both offense and defense, depending on the cycle direction.

First, good managers are prudent. During a favorable economic cycle, they build liquidity in cash reserves. Interestingly, most critical financial mistakes are made in the best of economic times. Accelerated expansion and frivolous spending patterns present challenges when the economic cycle turns. Good managers attempt to maintain a working capital to revenue ratio above 25 percent with 10 to 20 percent of the current assets in good old-fashioned cash.

Second, a good manager develops and implements marketing and risk management plans designed to preserve working capital and reserve liquid financial assets for expenses and debt service obligations. Idle cash in the bank can be a powerful incentive for vendors or dealers to discount their rates to keep or receive your business. Correspondingly, when cycles reverse and margins tighten, a manager with adequate working capital is not pressed to sell business assets below value to generate cash.

Next, good managers consistently evaluate fixed and variable costs. Non-productive assets are proactively liquidated which reduces fixed costs and increases the asset turnover rate. Tools such as enterprise budgets and partial budgets are utilized to examine resources and re-allocate, if necessary, to the more profitable use. Moderation in family living costs and the ability to trim standards of living in tight economic times is the hallmark of a good manager.

Finally, successful managers seek education and invest in outside, off-farm resources in order to challenge the normal standard. In summary, proactive actions are vital to success and sustainability throughout the economic cycle reset. Build up your self-insurance in working capital to not only meet obligations but to position your business to take advantage of potential opportunities. Carefully monitor expenses, both on and off the farm. Focus on efficiency and most importantly, continue to look forward. Good managers constantly strive to position their businesses to capitalize on the next economic cycle.