Highs and lows are to be expected in the dairy industry, and many of us have been through these challenges before and know that it IS possible to sustain your dairy operations until margins improve. That said, it is important to note that there are no magic formulas or quick fixes to low commodity pricing. It’s definitely NOT a time for business as usual if you want to be doing business in the coming year.
Instead, take some very purposeful steps, consistently, so that your dairy business comes out on the other side of these economic times. As bankers, we want to help you proactively manage through these types of margins, whether that is adjusting loan terms or making other corrections. Here are a few tried-and-true ways to minimize damage to your balance sheet and your dairy farm’s viability:
- Know your numbers. Dig into your income statements – deeply and regularly – so that you can find ways to adjust. You need to understand your budget, income and expenses, and keep tabs on where these fall on a month-to-month basis. Low margins require more timely financial information and use of that information to make decisions on a weekly, monthly and quarterly basis vs. annually. If you do it infrequently, things can easily get away from you and you can’t be as responsive in implementing change.
- Get a handle on asset utilization. In other words, know whether the key larger assets on your balance sheet are making you money. Look at the machinery in your operation and ask yourself if it’s crucial to your operation. Does it make or save you as much money as it costs you to own? Do you know how much the flexibility of owning it costs you? Top managers are willing to challenge the status quo.
- Carefully evaluate needs vs. wants. This is a relevant topic for any business owner. Bankers are trained to talk about the difference between the two; the best managers listen to that talk and put it into action in the decisions you make on your farm. Fixing a piece of machinery vs. buying a new one is a decision that hasto be made on most farms regularly.
- Engage your key employees in conversations about financial performance. Some dairy farmers keep money issues to themselves instead of being open with their key employees. But by sharing issues with key employees, you can tap their ideas for meaningful ways to save money and weather the storm.
- Invite meaningful, proactive conversations with your consultants: banker, accountant, nutritionist, veterinarian, attorney, etc. Your consultants are there to be consulted; use them as sounding boards and to challenge the status quo. We as bankers appreciate it when our customers do proactive analysis and can then show us what they’re doing to adjust.
- Invest in marketing. If you’re not an experienced marketer, try to find reliable professionals who can educate and guide you in executing a solid marketing plan. This entails both looking at input costs (mainly feed and grain prices) and the price of your milk. It’s a “margin protection approach.”
By focusing on the things you can control instead of worrying about things that are out of your control, you can proactively manage these challenging times.