Read an Excerpt
CHAPTER 1
PART 1
HOLISTIC FINANCIAL PLANNING
Generating Lasting Wealth
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 holistic context goes far beyond profit. In fact, both the materialist who finds the breath of life in crisp new bills and the poet who would rather live without them 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 by 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.
That said, Holistic Financial Planning does not result in a business plan, but ideally should operate within one that includes multiple-year goals and strategies, performance milestones, and so on. Holistic Financial Planning will result in an annual statement of your income and expenses, which includes a budget and cash flow that you plan forward with an understanding of holistic decision making and key environmental insights. It will be accompanied by a statement of your beginning and ending net worth (similar to, or the same as, a balance sheet). It is not linked to an accounting system, nor monitored and controlled by your accountant. You are in charge of managing and monitoring the plan you create. However, the more you can match the account names used in your accounting system to the income and expense categories in your financial plan, the easier it will be to operate and manage the financial plan.
Two key principles in Holistic Financial Planning differentiate it from other methods:
• Plan profit before planning expenses. Just as work expands to fill the time available, so expenses often rise to the level of anticipated income. So, when creating the plan, we plan the profit first to overcome this tendency.
• Check for context alignment. Which actions are actually moving you closer to your goals? The context checks make sure you prioritize those actions that do move you in that direction while ensuring you achieve a healthy triple bottom line (financial, environmental, social).
The planning process includes two parts. The first is devoted to reviewing the current year's plan, gathering information and figures for the new plan, and running decisions through the context checks. All the thinking, decision checking, and sorting of the information you compile then comes into play in the second part when you put your plan on a spreadsheet. If you've done the first part well and researched the costs involved in the ideas you want to implement, you probably won't need more than a day or two to put your plan on paper.
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 holistic context. 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 Holistic Context: Aligning Your Financial Decisions
Your holistic context ties what you value most in life to your life support system. It starts with an expression of how you want your life to be in the whole you are managing and then describes the environment and behaviors that will sustain that quality of life for future generations. Keep it in mind at all times as you proceed through the Holistic Financial Planning process. Ambiguity about your holistic context may not result in an unworkable plan, but it could very well generate a plan you will not want to work (and may even sabotage subconsciously).
As money is merely a measurement, so profit is a means of fulfilling the desires expressed in your quality of life statement. 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 holistic context demand it. Clarity in your holistic context will enable you to avoid temptations and opportunities of tremendous promise that nevertheless lead in the wrong direction for you.
The planning procedure, covered later on in "Creating Your Plan," 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 holistic context and a deep ownership in it make that possible.
The Context Checks: Reducing Decision-Making Stress
At this point, reread Holistic Management: A Commonsense Revolution to Restore Our Environment, third edition, chapters 24 through 31 on the context checks: Cause and Effect, Weak Link, Marginal Reaction, Gross Profit Analysis, Energy/Money Source and Use, Sustainability, and Gut Feel. A brief summary also appears at the end of this book in appendix 1. In Holistic Financial Planning, all your policies and projects must come up for review through these checks as you allocate resources. You may start with a hundred different 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 this year with the resources you have? Use the context checks when you do this. They will cut a significant amount of the confusion out of this task.
Sidebar 1-1
A Word about Profitability
In conventional planning, managers first plan production — crops, meat, timber, hunting leases, and so on. Then they calculate the anticipated income for the year, then the expenses, and finally cut and paste until they see a positive balance. This tends to make profitability the ultimate test, for which all other considerations are compromised.
Holistic Financial Planning proceeds in a rather different way. Profit is planned before any expenses, and it ranks alongside other elements that will sustain your definition of a good quality of life, which probably includes prosperity or economic security. The context checks include a "gross profit analysis," which is designed to highlight how much each enterprise contributes to covering fixed costs, or overhead. This ensures that a plan will indeed produce profit. The other checks then help ensure that the actions you take to create that profit are socially, environmentally, and economically sound — simultaneously — both short and long term.
Remember, when checking any action or decision to be clear about what it is you are checking. Don't rush to check a decision before you have 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 run through the context checks to make sure that in achieving your objective you remain aligned with your holistic context.
Speed is essential to the checking process, or you risk losing sight of the whole. However, two checks, 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 assessing a possible new enterprise (gross profit analysis). Then pass quickly through all the other checks that apply. You may need to return to both these checks. The cause and effect check may require additional probing to find the underlying cause of a problem. If the potential new enterprise passes the other checks, a more detailed gross profit analysis will be needed.
As neat as the context checks 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 checks, 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 check. 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 is important to remember why you are doing what you are doing, so let's recap. You are attempting to make decisions that are economically, socially, and environmentally sound and aligned with your holistic context. The checking questions 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.
Holistic Management covers cause and effect, sustainability, and gut feel well enough to warrant no further practical advice here. The same goes for weak links in the social and biological contexts. The other checks, however, require some translation into dollars and cents. Let's take them one by one.
Financial Weak Link: Generating Wealth
The financial weak link check has profound implications for deciding the fundamental question of planning: "How do I maximize the income I can generate?" The place to focus is on the weakest link in each enterprise. 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 a business 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 checks have been passed and the action is in line with your holistic context. 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, ecosystem services, 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; a water, 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 are not 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 for ranchers and farmers put great emphasis on the resource conversion link because ranchers and farmers have a tendency to leave that one to Nature, assuming management can do little to influence the amount of sunlight plants convert to usable energy.
But the rancher now knows that she can increase energy flow by using animal impact to break up soil capping and lay down litter to improve the water cycle and grow more plants, and plan the grazings to prevent overgrazing and enhance growth rates and growing time. The farmer can maximize energy conversion by good selection of heat- and cold-tolerant crops and planting dates, which can extend effective growing seasons, and by keeping soils covered, and creating good drainage, crumb structure, and abundant organic matter within them to maximize the area of leaf open and exposed to sunlight.
You can probably produce a landscape that will turn more sunlight into edible carbohydrates and protein, or farm in a way that builds soil fertility and reduces vulnerability to drought. 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 will have a weak link to find in five different enterprises. (See box 1-1 for more examples.)
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 item for training, fencing, advertising, or whatever strengthens that link in the chain.
Box 1-1. Identifying the Weak Link
Here are some things to look for when trying to determine the weak link in the chain of production in a given year.
LIVESTOCK OPERATION
Resource (Sunlight Energy) Conversion
• Forage shortfall
• Paddocks too few, or herd control too poor, to minimize overgrazing
• Too many herds
• Drainage poor
• Plant species composition poor
• Low litter accumulation
• High supplement cost
• Inadequate or unbalanced soil fertility
Product Conversion
* Unutilized forage that is oxidizing
* Sufficient forage but
low calving/lambing rate
poor gains
poor genetics
high mortality
Marketing (money conversion)
• Low prices
• Market resistance due to
insensitivity to demand
inadequate research
poor quality
poor sales effort
ignorance of market mechanisms (futures, etc.)
CROP FARMING
Resource (Sunlight Energy) Conversion
•Acreage too small
• Inputs too high (fertilizer, etc.)
• Poor water cycle management
• Drainage poor
• Overirrigation
• Planting only one crop when two or more crops could be grown in a field in the same year
• Planting too late
• Monoculture cropping
• Poor germination
• Poor crop health
• Inadequate or unbalanced soil fertility
Product Conversion
• High damage loss (insects, disease)
• Low-tonnage marketable product versus dry matter produced
• High harvest and handling loss
• Excessive crop-drying costs
• Transport damage
Marketing (money conversion)
• Low prices
• Market resistance due to
inadequate research
poor quality
poor packaging
poor sales effort
ignorance of market mechanisms (futures, etc.)
unnecessary middlemen
Even though purchasing feed allows you to carry more animals, it does not strengthen the resource conversion link in terms of harvesting more sunlight; however, fencing, land acquisition, plantings, or improved drainage 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.
(Continues…)
Excerpted from "Holistic Management Handbook"
by .
Copyright © 2019 Allan Savory and Jody Butterfield.
Excerpted by permission of ISLAND PRESS.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
