Managing the dairy business can be like a juggling act
Not long ago I attended a meeting when a juggler had been employed as entertainment for the meeting. The young man started out with several balls and kept them in the air quite easily. He then moved to bowling pins where he worked a little harder to keep 3 and then 4 pins in the air. At that point in his show he started juggling swords that were razor sharp.
As a professional working with many dairy farms, here is my analogy of farm families trying to manage their accounts over the past year and a half or so. Imagine if you, a dairy farmer, were really a juggler. Good jugglers make it look easy, shifting from balls to bowling pins to swords. For many that try it though, there is a need to practice and practice. So, how does a farm manager juggle the accounts to keep the sharp flying swords from injuring or piercing the business?
Over the years, I have worked with thousands of farms in an effort to help them manage their accounts. Some families seem to make do on very little, while others are challenged to make ends meet. Why is this and what makes a budget “manageable”? How much can we trim from a budget and still produce? For many the “want” list went out the door long ago. The “need” list is now a challenge. With the economy as it has been, there is a lot more scrutiny over just what that perceived “need” list is.
Because of tight budgets present on a dairy operation today, we oft times focus on the large ticket items such as feed costs. This can be an area of opportunity. It can also be a serious challenge. Changing the ration just to lower costs can have serious repercussions on production. Any changes should be seriously scrutinized in cooperation with a competent nutritionist. Another large ticket item is labor. Getting the most from your labor dollars also deserves an in-depth evaluation on if and how more labor efficiencies can be incorporated into the operation.
Another very important area to consider is the structure and balance of finances. How much of the loan portfolio is in short term, intermediate term, or long term loans and notes? The challenge is to pay things off as soon as is possible, pay all expenses and yet have some left over at the end of a year, with a 20% cushion as a goal. With today’s prices and economic conditions, that may be an elusive target as many costs are fixed.
Family living expenses are an important concern. Know what your living expenses are. If you do not know this, start monitoring these expenses to establish your cost of living. If the expenses seem too high there may be room for scrutiny and decision making.
The key to budgeting is to know your expenses and then manage them. Living within a budget can be confining, but the alternative may be an unwanted lifestyle change.
Despite the challenges, the attitude taken to address them can also play a role. Kent Olson, University of Minnesota economist, shares the following information from a survey of Southwest Minnesota Farms.
The preliminary analysis points out several interesting factors that farmers potentially can control or change.
Factors that have an overall positive impact on either net farm income per operator or return on assets include having a positive attitude: the farmers’ attitude that they control their own destiny and that farming has a bright future. Other positive factors include setting and striving for goals, paying a higher wage (for good people), and being involved in a custom work enterprise to increase the efficiency in using their machinery. Farmers in the top group were more likely to agree with the statement that their concern for the environment affected their decisions.
Overall negative factors related to being in the top group included the value they placed on an income statement (which may be a reflection of the top being more interested in leading indicators of income production versus an after-the-fact statement of income). A nonfarm job held by the primary decision maker was negatively related to being in the top group (but this does not mean that a farmer should resign from his/her nonfarm job to become more profitable automatically).
Jugglers start out slowly and work their way up to perfect their craft. It takes a real focused concentration. The key to management on the dairy farm is concentrating on what can and needs to be done, then focusing on making change that will have a positive impact on the financial status of the business.
Published in Dairy Star August 6, 2010