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Financial management practices during challenging times

Tim Dolan

Published in Dairy Star October 2, 2009

Over the past few years, I have worked on dairy development projects in Southern Africa. The projects have involved individual groups of small farms that are just getting started in dairy. In those few years, these groups have made some headway and they seem to be making improvements and planning for the future. Of course, their farms are small and they have only an animal or two, sometimes a few more. Their navigational skills with their dairies equates to steering a small boat in a small pond. The optimism to note here is that they are making plans for the future.

A year ago I wrote of essential information needed for the ‘navigator’ of today’s dairy (Dairy Star, Oct 25) . The seas have been rough on the ‘Dairy’ ship to say the least. So, how does one navigate through the time ahead when coming out of the difficult storm? The latest financial challenges in the dairy industry are reason enough to cause one to take much more time out for management than ever before. It is necessary and time well spent. It may not be easy to find the time and the results may not be pretty, but it needs to be done. Dang the torpedoes and missiles; just get started!

A good place to start on the “Sun will come out tomorrow” plan is to figure out a balance sheet/inventory assessment. This will include a comprehensive listing of all assets and liabilities. This information will let you know where you are at. Do not get discouraged. Like I said, “the sun will come up”. If this is something you do regularly, you will have a financial history of where you have been so you can assess what has changed over the course of the past year. It can be a mirror of the past and a beacon for the future. At this point, optimism is an important attribute. You can look back, but it won’t change anything. If you look forward, you can have a positive impact on your future.

Having this information is just the starting point. Setting a course of action to reach a particular destination is an important next step. The destination to where you are going is a question that can be answered by doing a long range budget plan and/or cash flow plan. One or both of them need to be done. Developing and gathering all possible information has never been more important. Planning out the next year month by month or planning for a change can point out areas that you will need to pay attention to in coming months. Although there are a lot of things that may need attention, this process will help you prioritize by order of importance and help determine how each item might pay back for the short and long term. When going through this process, I cannot emphasize it enough, “You need to ask questions.”

Another important step is to do a complete financial analysis to see how all areas of your business were impacted. Once again, the key premise here is to get all the information you can as good information will be your biggest ally. The tools you need can all be found within the FINPACK financial package program from the Center for Farm Financial Management at the University of Minnesota. The balance sheet, budget, long range budget program (FINLRB), cash flow planner (FINFLO), and financial analysis tool (FINAN) are all a part of this FINPACK package of financial tools. These are navigational tools that, when used with good and accurate input information, will yield a rational course of direction to move forward in your dairy business. Another tool that the Center offers is FINBIN. This tool can give you good benchmark information so you can compare with other farms similar to yours.

Put all together, these tools are very important in your planning. Even the longest journey begins with a single step. Make that step toward financial planning. Using good financial tools, spending the time to do the homework, evaluating where you are at, setting a course of action, and managing accordingly are the most important steps you can take for your business. When driving at night, you need to have the headlights on to see where you are going otherwise you won’t reach your destination. And it’s much safer! In the same manner, seeing and knowing where you are going in your business, especially during this financial difficult time, can be just as important. It’s how to keep the home fires burning!

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