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Holistic Management Handbook
Healthy Land, Healthy Profits
By Jody Butterfield, Sam Bingham, Allan Savory
ISLAND PRESSCopyright © 2006 Allan Savory
All rights reserved.
HOLISTIC FINANCIAL PLANNING: Making a Healthy Profit
This book does not begin with land planning, stock density, paddocks, and grazing periods. It begins with financial planning, because money is the ruler. For better or worse, it is the ruler, even though your holisticgoal goes far beyond profit. In fact, both the materialist who finds the breath of life in crisp green paper and the poet who would rather live without it might find more peace of mind and freedom of spirit by accepting the notion that money is nothing but a tool. It is certainly not fulfillment and not necessarily even wealth, broadly speaking.
Holistic thinking would be infinitely harder without the benefit of a tool like money with which to measure progress, though, of course, money is certainly not the only measurement. By definition, holism deals with "wholes," in which many elements affect each other simultaneously, but the human brain can't handle everything at once. Since your wallet probably can't, either, Holistic Financial Planning is the process through which you will reduce the grand notion of holism to the practical matter of what you do first and how much of it you do, so the whole will come out right.
The very words "financial planning" may remind you uncomfortably of income tax time. As with tax preparation, it is not filling out the form but gathering the information to fill the blanks that presents the greatest challenge. Unlike the result of tax work, however, the result of financial planning is prosperity and dreams come true.
At the information-gathering stage you will begin to formulate a general strategy based on your analysis of your situation and your "holisticgoal." The framework for Holistic Management comes into its own at this point. The holisticgoal and testing guidelines will help you keep a perspective on when to use money as the yardstick, when not to, and how to decide priorities.
MASTERING THE BASICS
Holistic Financial Planning is the single most important activity you can undertake each year to ensure that all the money you earn and spend is in line with your holisticgoal. If you seek prosperity and financial security, few activities during the year count more than this planning. It takes precedence over vacations, interruptions, and excuses of any kind.
Your Holisticgoal: Aligning Your Financial Decisions
As explained in the Holistic Management text, the whole thing depends on having a holisticgoal that ties what you value most in life to your life support system. Your holisticgoal starts with the quality of life you are seeking, states the forms of production that will help you achieve it, and then describes the future resource base that will ensure both are sustained. As a practical matter, you cannot proceed through the planning process without keeping this trinity clearly in mind at all times. Ambiguity about your holisticgoal may not result in an unworkable plan, but it could very well generate a plan you won't want to work (and may even sabotage subconsciously).
Your holisticgoal should invite creative thinking, not limit it. A duck-hunting rancher may automatically list "profit from livestock" or "migratory water bird habitat" as forms of production. However, more general categories such as "profit from land-based enterprises" or "abundant wildlife" will help keep your mind open to possibilities outside those that you and your neighbors already know. A narrowly defined form of production such as "profit from winter wheat" kills imagination and flexibility. Further on in the planning you may indeed test the profitability of any number of specific land-based enterprises, perhaps including livestock and wheat. Or you might explore the feasibility of reconstituting an old irrigation project as a wetland. At the level of your holisticgoal, leave all options open.
Don't forget that a future landscape description is a critical part of your holisticgoal. You can't make long-term progress in terms of production and quality of life if you don't take steps to produce and maintain that landscape.
As money is merely a measurement, so profit is a means to reach other aspects of your holisticgoal, particularly those related to quality of life. A close family, the creation or preservation of good land, public service, church work, the education of your children, loyalty to relatives, and many other desires and duties all put demands on profit. If you do not have these things in mind when you plan your commitment of money and labor, you will make a plan that you will inevitably scrap the minute these other aspects of your holisticgoal demand it.
Clarity in your holisticgoal will enable you to avoid temptations and opportunities of tremendous promise that nevertheless lead in the wrong direction—for you.
"My neighbor is selling out. I could get a great deal on his hay machinery. Why not get it?"
"The government has a cost-share program. Should I participate?"
"My husband just won a trip for two to Fiji. Should we go?"
The procedures in this chapter will help you organize a huge amount of complex information about operations that go on simultaneously, but you still have to go one step at a time and put one thing ahead of another. Clarity in your holisticgoal and a deep commitment to achieving it make that possible.
The Testing Guidelines: Reducing Decision-Making Stress
At this point reread the textbook chapters 25 through 32 on the testing guidelines: Cause and Effect, Weak Link, Marginal Reaction, Gross Profit Analysis, Energy/Money Source and Use, Sustainability, and Society and Culture. A brief summary also appears in appendix 1.A. In the Holistic Financial Planning process, all your policies and projects must come up for review through these guidelines as you allocate resources. You may start from a thousand ideas, but before you actually plan action on any of them, you have to evaluate their soundness and set priorities. What enterprises, what investments in land improvements, what training for your staff, and so forth, will you try to carry out with the resources you have? Use the testing guidelines when you do this. They cut about 90 percent of the confusion out of this task, but unfortunately they don't eliminate it all.
Remember, when testing any decision, you must be clear about what it is you are testing. Don't rush to test a decision before you've clarified what your objective is—to reduce weeds in a pasture, buy a tractor, or whatever—and discussed all the aspects you normally would: what you know or need to know about the proposed action in terms of past experience, research results, a friend's advice, expert opinion, or what it will cost. Only then should you check through the testing guidelines to make sure that in achieving your objective you also move closer to your holisticgoal.
Speed is essential to the testing process, or you risk losing sight of the whole. However, two tests, Cause and Effect and Gross Profit Analysis, require a lot of thought and, in the latter case, calculations using pencil and paper. Do them first if you are dealing with a problem (cause and effect) or comparing enterprises (gross profit analysis). Then pass quickly through all the other tests that apply.
As neat as the testing guidelines appear in theory, they overlap a good deal, and for good reason: What you might miss in one you pick up in another. Sometimes it proves impossible to figure out where one or another applies, but of the seven a few will almost always prove critical in a given case. Some, such as sustainability, almost always apply. Don't agonize over ambiguity in regard to any one guideline. They all function together like the elements in one of those filters that purifies water through a series of screens, flotations, and catalysts, each of which eliminates one class of contaminants while ignoring the rest.
It's important to remember why you are doing what you are doing, so let's recap. You have a holisticgoal you are working toward that is guiding all your decision making. You are attempting to make decisions that take you toward your holisticgoal in the most economically, socially, and environmentally sound way, both short and long term. The testing guidelines help you do that. They come into play in Holistic Financial Planning because in deciding where to allocate money, you are actually making most of the major decisions for the year.
The textbook covers cause and effect, sustainability, and society and culture well enough to warrant no further practical advice here. The same goes for weak links in the social and biological contexts. The other tests, however, require some translation into dollars and cents. Let's take them one by one.
Financial Weak Link: Generating Wealth
The Financial Weak Link guideline has profound implications for deciding the fundamental question of planning: "How do I maximize the income I can generate?"
In training sessions the weak link guideline is sometimes introduced like this:
Instructor: "If I kept adding tension to this chain, where would it break?"
Class: "At the weakest link."
Instructor: "And if I strengthened that, where would it break?"
Class: "At the next weakest link."
Instructor: "No, at the weakest link."
It's a teacher's trick to focus on the fact that at any given moment there is only one weakest link, and you must deal with it before considering any other link.
You are trying to build an operation and an environment (future resource base) that will endure, so you and following generations can sustain a profit. To do that, you want to ensure every year that your major investments of money and labor keep strengthening the weak link in the chain of production that exists at any point in time for each of the enterprises you engage in. Once you have identified the year's weak link in each enterprise, you look at all the actions you could take that would strengthen that particular weak link as soon as possible. When allocating money for expenses, those actions that address the weak link in an enterprise will receive priority, assuming that other tests have been passed and the action is clearly leading toward the holisticgoal. Expenditures that address a weak link are considered wealth generating because they boost production, and thus profit, to a new level, though perhaps not until the following year. Other expenditures generally maintain production at current levels.
The chain of production always has three links, as shown in figure 1.1. If you are a rancher or farmer, your primary production is based on the conversion of sunlight energy (through plants) to a salable or consumable product, such as food, fiber, lumber, wildlife, or recreation. Jargon aside, this means that plants capture solar energy to make food, then you turn that "food" into a marketable product—bale of hay, gallon of milk, bird watching opportunities, hunting or fishing lease, or whatever. But you have to actually market that product or service before you have a dollar in your hand that you can live on or reinvest in the business. Ideally, you want the money you invest in a weak link to be in the form of solar dollars, which ranchers and farmers produce through harvesting sunlight and converting that sunlight to money, as long as soils aren't damaged in the process. Mineral dollars achieved at the expense of lost soil or paper dollars borrowed from the bank can be used to strengthen a weak link, but in the first case they could undermine your future resource base, and in the second they usually come with interest attached.
Although the weak link in each enterprise shifts from year to year and can shift within the year, Holistic Management training programs put great emphasis on the resource conversion link because ranchers and farmers have a tendency to leave that one to God, who unfortunately has seldom interceded to mitigate the effects of human neglect. The discovery of the four insights that are key to understanding our ecosystem, however, passes the buck back to human management. You probably can produce a better range that will turn more sunlight into edible carbohydrates and protein or farm in a way that builds soil fertility and reduces vulnerability to drought.
The Chain of Production
Each enterprise you manage will always have a weak link at any moment in time. Thus, if you run cattle and sheep and plant sorghum, winter wheat, and Bermuda onions, you'll have a weak link to find in five different enterprises. Whatever you determine to be a weak link, you must set in motion an action plan to strengthen it. This action plan will show up on your financial planning sheets as a separate expense column for training, fencing, advertising, or whatever strengthens that link in the chain.
Even though purchasing feed allows you to carry more animals, it does not strengthen the resource conversion link in terms of harvesting more sunlight. Fencing, land acquisition, plantings, or improved drainage, however, could. If you have too few animals to consume the forage you produce, then product conversion is the weak link, and a plan for increasing animal numbers addresses that link.
If the resource conversion link is weak for the hay enterprise, an investment in a new swather or engine overhaul would be a waste of money. A new drainage system makes more sense because it enhances growth and thus solar energy conversion. Therefore, if your equipment will last another year, put the money into tile pipe instead.
There is often a gray area between the product and marketing conversion links. For example, poor-quality wool might be considered a product conversion weak link if it was tied to the quality of the animals that produced it but a marketing conversion weak link if it was delivered dirty. What matters in these cases is not the precise positioning but that you see the problem and address it as you reinvest in the business.
You may have enterprises that are not directly dependent on solar energy conversion, as is the case with most urban businesses. A bed and breakfast enterprise on a corner of the property would be such an example. In this case the resource conversion link does not involve the conversion of sunlight. The resources you're converting to a product are money and creativity and might include building materials and the retired couple from town who will run the operation.
Energy/Money Source and Use: Investing Soundly
Money derived from the mineral wealth of the earth we term mineral (or petrochemical) dollars, and money derived through plants grown by the power of the sun we term solar dollars. A characteristic of mineral dollars is that we can choose either to use the resource from which they are produced over and over in a cyclical manner, or to mine and consume the resource all at once. Soil would be an example. We could choose to build soil and continue to use it for centuries, or we could destroy and erode it until it is gone. Tragically, mainstream agriculture has chosen the second option in most instances.
Solar dollars are produced directly or indirectly from plants. As plants, like humans, are totally dependent upon soil, a farmer is not strictly producing solar dollars unless soil life, and thus soil, is maintained or enhanced.
The third form of money, paper dollars is based upon human creativity and financial transactions, and its basis is no deeper or more solid than the public's confidence in the economy and the government. This form of money is very unstable and can be created or destroyed as land values, interest rates, stock prices, inflation, and currency exchange rates fluctuate.
Ranchers or farmers are better off measuring their success in solar dollars only and relying on the paper ones at their peril. The argument is both moral and practical. The health and fortune of humankind cannot be sustained without the creation of solar dollars, and those engaged in the management of natural resources accept a special responsibility in this regard. On the practical side, the more you can rely on solar dollars, the more you insulate yourself from swings in land and commodity prices, interest rates, and the like. This does not mean ignoring such matters. In fact, it demands a particularly nimble and flexible attitude toward them. All borrowing, especially if it is based on the current real estate market, involves paper dollars to some extent, so obviously your position is more stable if you can finance your plans out of solar dollars generated by your operation.
Excerpted from Holistic Management Handbook by Jody Butterfield, Sam Bingham, Allan Savory. Copyright © 2006 Allan Savory. Excerpted by permission of ISLAND PRESS.
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