What is Your Level of Commitment?

Recently, I have held discussions with two different producers about their level of commitment. One suggested that he had to be insane to tolerate the volatility of the dairy industry with its highs and lows in milk prices and feed costs the past five years. Right now, he is faced with having to buy springers each month… On the other hand, the second dairyman said he could not imagine doing anything else but being a dairy producer. What is the difference between their two outlooks? I believe that the primary difference revolves around their level of commitment.

In their book Great by Choice – Uncertainty, Chaos and Luck – Why Some Thrive Despite Them All, authors Jim Collins (who also wrote Built to Last and Good to Great) and Morten T. Hansen (author of Collaboration) talk a great deal about the roles of Resilience, Skills, Commitment to Preparation & Luck, and just how these factors can all play a role in the success or failure of your business. They tell the story of Malcolm Daly, a mountain climber who survived a horrible fall and his ensuing rescue from the side of Thunder Mountain in Alaska, just a few feet below its summit. “Malcolm Daly had been lucky enough to survive the fall, but he also had to be strong, skilled and resilient before the 44 hours of peril after his two-hundred-foot fall.”

They go on to say that “Luck favors the persistent, but you can only persist if you survive.” So, how do we go about surviving and to an even greater degree, thriving?

1.)    Start with a plan. Knowing what you want to accomplish, your target date and what steps you will take to get there are necessary ingredients for reaching your objectives. In an interview on DairyLine Radio, I previously stated that the future belongs to those who have a clearly defined plan. Whether you are driving your pickup truck, choosing a spouse or holding a discussion with your banker about expanding your business, you will always be better off with a plan.

2.)    Develop some resilience. No one ever said it would be easy to reach your goals in business and in life. However, that doesn’t provide us with a license to walk away, just because it may tough. When the going gets tough, the tough get going!

3.)    Obtain the skills you need to reach your objectives. It may cost some money, but it is far less expensive than facing a bankruptcy. I have been consulting for sixteen years and served as a commercial loan officer for seven years before that, but I still don’t know everything I need to know to succeed. I use a business coach, too.

4.)    Be prepared. As Jim Collins and Morten Hansen state in their book, “There’s an adage that says, ‘Better to be lucky than good.’ And it’s perhaps true – for those who seek to be only good, not much better than average, creating nothing exceptional. But our research brings us to an entirely opposite conclusion for those who aspire to more: it’s far better to be great than lucky.”

5.)    Finally, work hard to stay on course with your plan and always know where you are with respect to that plan. There is no alternative, other than to be like the warehouse worker, who, when asked how long he had worked at his current job, replied, “Ever since they threatened to fire me…” Staying on course with your plan will lend itself to far superior results.

To summarize, what’s your level of commitment? When challenges arise, will you be prepared? If having a plan to succeed in your business ever became a crime, would you be “guilty as charged?” If I can help you as you think about developing a bigger and better future, please let me know. Meanwhile, take a minute to go our home page and visit our free Success Tips section. You may find just what you are looking for!

Watching Out for Fair Weather Lenders!

Recently, I heard about a couple of banks who were anxious to start lending to dairy operations again. This seems odd, yet fitting, since they both could be described as “Fair Weather Lenders,” who give you an umbrella when the sun is shining and take it away as soon as it starts raining. They were both lenders who had clearly exited the industry during the past three years. In fact, in one bank’s case, they had inflicted lot of “pain” on their borrowers by making changes in their lending terms which, while they may have been beneficial over the long term, certainly were next to impossible to meet in the short term.

As a result, many producers were faced with lower herd values and tighter advance rates against their herd and feed assets, forcing them to be out of compliance. Then came the heartless “workout guys” with their weekly demands for additional reporting and a “plan” for the borrower’s exit strategy, either from the bank or, if necessary, from the dairy industry. When the “Goon Squads” were done with most borrowers in these situations, they were more than happy to leave this lending institution behind and go elsewhere.

The problem with “Fair Weather Lenders” is that, when you need them the most, they won’t be there for you. On the contrary, they will tighten the terms of your current agreement, either by bank-wide fiat or at your next loan renewal or extension. Rather than “riding through the storm” with you, they start making additional demands of you when you can least afford to be without credit. As a result, you get “painted into a corner” with very few options to fall back on. 

If you get approached by marketing people or loan officers from this type of bank, they will be quick to point out that their bank’s prior decision to exit the dairy industry (or any industry, for that matter) was not theirs. Rather, it was mandated from senior officials of the bank, based upon their stock’s performance, shareholder value, trends in the industry or who knows what. All of that may be true, but what is to stop this same thing from happening again during the next industry downturn?

Management guru Peter Drucker, in his book entitled The Daily Drucker stated, “Character is not something one can fool people about… They may forgive a person for a great deal: incompetence, ignorance, insecurity, or bad manners. But they will not forgive a lack of integrity in that person.” Blaming the “people upstairs” is not a very good example of either integrity or positive leadership. I want to know that my Loan Officer is going to be there for me when I need his or her assistance.

What’s the best response to have ready when the Fair Weather Lenders come calling? I suggest that you ask them how many dairy operations they “shut down” from 2009-2013. Also, you can ask them if you can talk to some of their borrowers who they stayed with during the same downturn. If they can’t or won’t answer those two questions for you, your time and efforts would definitely be better spent on managing your operation, because you have probably just met a Fair Weather Lender!

If you would like to learn more about building your banking relationships, check out the section entitled “Help for Dairy Farmers – Dairy Farm Loans” on my website at www.success-strategies.com. I hope you find my articles helpful!

Should You Be Committed?

Not long ago, I was approached by a Client who said he wanted to own more land. With his 3,000 cow herd, we agreed that it made a lot of sense. He could grow more of his own feed and probably decrease his overall feed costs.

“What about the down payment?” I asked. He had no excess equity in his land base to borrow against, so I explained that he would need 30-35% of his purchase price as a down payment. His lender would then provide the rest of the money. Buying 100 acres at $10,000/acre would cost $1,000,000. This would require $300,000 to $350,000 for the down payment. “Where am I going to get that?” he asked.

Actually, I was glad he asked. I suggested that he start putting all odd amounts of income, e.g. USDA funds, bull calf money and at least part of his cull cow money into a separate savings account. My intent was not to draw that fabulous 0.01% interest we currently receive on any savings, but rather it was designed to segregate these funds from his checking account, with the sole intent of protecting the money from being spent. I call it AGS – Acute Goal Savings.

This went fine for about two months, after which I asked how much had been put away. “Well, I just recently quit doing that!” Of course, I asked why… His reply was, “It’s just too much of a hassle. Besides, the bull calf money is my ‘fun money.’” Wow, I thought, this should represent worlds of fun in 2014!

I tried to rationalize with him, “Well, if you get the additional 100 acres, won’t your profits go up and provide you with even more ‘Fun Money’?” His reply: “Nah. That’s crazy.” It made me wonder if I should be “committed” for suggesting such crazy things…

Now, contrast that with another Client who milked 600 cows. I suggested the same AGS concept to these two brothers. They started it two months later and, after just 18 months, now have $50,000 in their AGS account. Within the next several months, they will have enough saved for the down payment on their goal of building a new fresh cow & maternity barn! This should reduce their over-crowding, boost their fresh cow management, and increase their herd’s milk production.

What was the primary difference in these two examples? In total dollars, the 3,000 cow herd owner’s dream was considerably bigger, but he lacked the “commitment” to the objective. In contrast, the 600 cow herd owners needed fewer dollars. However, the real difference was in their level of commitment, that necessary ingredient needed to convert their dream or goal into reality!

It takes both a Goal and a Burning Desire, also known as commitment, to reach your goal. With that in mind, I will leave you with a simple question: “Should you be committed?”

Knowing Your “Why”

Many of us understand the benefit of establishing a solid set of Goals. These can be for your business, your personal life or any number of other items. I believe they represent one of the most important tasks that you can undertake. Yet, many people set goals every year, but then fail to accomplish them. New Year’s resolutions are an excellent example of this. Why is it that these so often fail to come to fruition?

Actually, I am glad you asked! The reason is that setting your goals is only part of the process. Of equal importance is of knowing your “Why.” Why is this goal important to you? Why does it matter to you? Why do you want to accomplish this specific item?

Let’s look at one example. First, you may have the goal of having your dairy herd average 90 pounds of milk per cow per day. That’s nice, but why does that really matter? Well, you contend that this production level will make you more efficient. Then, I might ask, why do you want to be more efficient?

Somewhat frustrated, you claim that if you can operate more efficiently, you will be more profitable. So, I then ask why you would want to be more profitable. Is it just to acquire more money? Finally, you reply (somewhat out of exasperation at this point) that being more profitable will allow you to take your family on a vacation occasionally, have money set aside for your two children to go to college, and also get you financially prepared to retire sometime in the future.

Aha! I finally got you to focus on what really matters most with your Goal Setting. Of course, the Goals, themselves, are significant. Without them, you will meander, at best, in making any progress. In addition to setting your goals, though, it is essential to understand “Why” you are pursuing this goal.

Without understanding why, it is so easy to get frustrated and give up your pursuit of any goal. However, if you take the time to understand and write out your “Why,” you will be better positioned to “stay the course” and ultimately reach your objective. For example, if the weather turns extremely hot or your feed supply gets damaged due to rain or other weather issues, you may get easily frustrated and give up your goal of hitting the 90 pounds per cow per day goal we discussed above, settling for less. 

On the contrary, though, if you understand why you are pursuing this goal and the long term implications of actually reaching it, you are far more likely to do whatever it takes to reach your long term objectives. Knowing your “Why” will provide you with the motivation necessary, as the Boy Scouts state, to “Improvise, adapt and overcome!”

Build a solid foundation under your Goals, by knowing your “Why!” I think you will be glad you did. To learn more about Goal Setting and related topics for your business, check out the articles on the home page of my website at www.success-strategies.com. I hope you find them helpful!

The Trial of the Century!

I realize that, given the solid margins of 2014, it is easy to forget about how difficult the prior eight years had been in the dairy industry. Recall the challenges of high feed costs for most of 2008 to 2013 and the calamity of $10 milk prices in 2006 and 2009? These years represented the trial of the century! I know that we would all like to forget these years, but, given our participation in a “world market,” some of them could occur again. Would you be prepared if these events happened again?

Over the next several blogs that I produce, I plan to talk about what to do if these events recur and, more importantly, how to prepare for them ahead of time. Think they cannot happen again? The September 2, 2014 issue of the Daily Dairy Report stated that we have seen similar times when ourU.S. prices are well above prices in the world market: “Similar price levels in September 2012 led toU.S. cheese imports (primarily fromNew Zealand) of more than 40 million pounds in November and December. CME spot Cheddar cheese prices that year traded above $2/lb. in early November but closed 2012 near $1.70.” Could this happen again? Possibly…

Would that impact your dairy operation? I know it would affect my Clients! In a moment, I will explain how I know. What has been different for the survivors historically? I believe it boils down to two primary factors. The first of these is having a plan on every major decision they make in their business. Now, please understand. No one really wants a “plan.” What they desire is what having a solid plan can provide them: the ability to make better decisions and, thus, achieve more profitable results!

The second major factor to success is knowing where you are financially at all times. I’m sure you have heard the expression: “What gets measured gets improved,” but please remember that “What gets measured and recorded gets improved measurably.” The reason for that lies with the fact that these steps will lead you to take action and make improvements in your business. The reason for this is that you know what needs to change to move forward successfully. We can’t do that if we are “flying by the seat of our pants!”

We have to know our current financial position at all times. Whether you are facing your banker or just facing the future, you simply have to know. It’s your choice and your responsibility. Next time, I will introduce you to a new system that some of my colleagues and I have been developing for making these very measurements within your business. Until then, start to review your marginal costs and returns. I think you’ll be glad you did. 

“No Excuses!”

Previously, I have used the following quote from General Eric Shinseki of the U.S. Army to make an important point: 

“If you don’t like change, you’re going to like irrelevance even less.”                                             

We are in a constantly changing industry environment where decisions we made five years ago are not necessarily as effective as they previously were. It is time for each of us to take back the reins of the decision making process and adopt a more proactive approach moving forward. Management consultant Peter Drucker stated that, “The best way to predict your future is to create it.”

Yes, you’re saying, but how can I do that, given the dairy industry’s severe downturn the past five years, and “under the present circumstances?” I’ll tell you how – Get out from under those circumstances. Change your thinking. Alter your approach. It has been said that if you keep on doing what you have been doing, you’re going to keep getting what you’ve been getting… I contend that is just simply not true. In some cases, it can cause you to go backward! So, what do we need to do?

Embrace change as you encounter it. Of course, we all like the familiarity of our normal day-to-day processes. At times, I am guilty of this, too. However, when things are changing as rapidly as they are in the dairy industry today, we run the risk of getting “run over” if we simply stand still. Yet, you are thinking that you just finished restructuring your bank debt and are getting most of your Vendor Payables caught up (hopefully). Can’t you stop and take a break? Do so at your own risk. Here is a list of items that I’d like you to think about: 

1.)    Where do you really want to be in five years? In ten years? How can you get there? What will it take to succeed in reaching those goals?

2.)    Who will take over your business when you are gone? Do you have a plan already in place? If not, why not develop one? Several years ago, I witnessed a sad but true situation where one person controlled all aspects of his business operation and, frankly, made all of the decisions. One day, at the ripe old age of 42, this person was killed in an unfortunate auto accident. The result was absolute chaos around his business. No one else was trained to make effective decisions, and there was no succession plan in place. It was a financial nightmare for his family. It all could have been avoided with a minimal amount of planning.

3.)    Have you implemented a “Milk Marketing Plan” yet? Are you using Put Options to establish a floor under your milk price? Likewise, are you working closely with your Nutritionist and others to lock in the best prices on feed at all times, not just now because they have been so high? Do you truly know your Break-even Points on milk price and feed cost? You need to know these!

4.)    As outlined above, have a plan on everything you do. Can you be assured of always making the correct decisions? Of course not. However, your odds of success will be greatly improved if you think about and develop your own plan for your business, particularly in comparison to letting the industry or others decide for you.

Former Notre Dame football coach Charlie Weis, upon being hired to lead a team that had win-loss records of 5-7 and 6-6 the prior two seasons and hearing the players complain about the school’s administration, replied as follows:

“Quit blaming everyone but yourselves for the reason there was a coaching change. There was a coaching change because you’re 6-6 and last year you were 5-7. There was a coaching change because you guys didn’t live up to the expectations around Notre Dame… Why don’t you just look in the mirror? Maybe the reason why you were 5-7 and 6-6 is that you’ve played crummy. Just maybe.”

“He certainly got their full attention. He claimed that you could have heard a pin drop. His message had come through loud and clear: ‘No excuses!’”

                        Charlie Weis in his book No Excuses

Let’s follow Charlie’s advice and realize that, as an industry and as individual participants, we have not always played by the best laid game plan. Reset your course today and join me in accepting “No excuses!”

Are you “Fine Tuned” or “Wandering?”

In my last blog, I stated (for the benefit of dairy producers, as well as those who sell to them) that:

“We have to know our current financial position at all times. Whether you are facing your banker or just facing the future, you simply have to know. It’s your choice and your responsibility. Next time, I will introduce you to a new system that some of my colleagues and I have been developing for making these very measurements within your business. Until then, start to review your marginal costs and returns. I think you’ll be glad you did.”

This blog is being written from the perspective of producers. However, this is important for those of you who sell to these same producers, too, since dairymen will be better positioned to pay for your product or service as their cash flow improves. I hope that, after reading my last blog, you actually took some time to look at what your various production costs have been. Did they seem reasonable? Have they increased over the last two years? This happens a lot when milk prices are high, simply because producers are under less pressure to control costs than they are when prices are depressed.

What should we measure? Obviously Cash Flow should be monitored, but, more importantly, the specific items that derive Cash Flow, i.e. all of our costs. This includes Labor, Supplies, Repairs & Maintenance, Vet & Breeding and numerous other expenses. How about the “grand-daddy” of all our production costs — Feed Expense? This represents anywhere from 50-65% of our total costs. If you are using a feed program such as Feed Watch or EZ Feed, you can measure Income over Feed Costs (IOFC) as often as daily. You can also do this manually, too, if you know your actual feed costs, but these programs can assist you to be more “automated” in measuring your feed costs. Your accuracy will hinge completely upon the level of precision with which you measure & input your costs. You can also complete this measurement of IOFC manually if you make an accurate measurement of your feed inventory each month. By the end of this article, I will explain how you can do this.

Why does this matter? Simply stated, if you want banks to loan you money in the future for operating needs or expansion, you will definitely need to illustrate that you have your costs under control. Would you loan money to someone who had no idea what his future cash flows and profitability will be? Of course not! Your lenders will always want to know what you expect to achieve in terms of Revenue & Expense. You won’t hit these target projections to the penny, but knowing what you expect to achieve will provide you with targets against which you can measure your actual results! It will also provide your banker with a notion of what your Debt Service Coverage will be. This is the ratio of your Net Cash Flow divided by the sum of your Principal and Interest Payments. Most bankers want this to be 1.25X or greater. It tells them whether their loans will be repaid as projected, and, of course, this is good to know. Even if you are “self financed,” you will want to know what your potential returns will be!

Knowing all of this information will show you what your Break-even levels are. If these are out of sync, you will need to make adjustments in order to boost your cash flow. Want to impress your banker? Be prepared to tell her that, even though milk prices are currently above $20/cwt, you can still break even at levels as low as $16/cwt!

In the next few weeks, my colleagues and I will be introducing a web-based tool designed to measure your cash flow and make comparisons against your budget. Would this be valuable to you as a producer? I believe so. It will also allow you to measure your feed costs as accurately as possible, using the information that you can input as often as you want. In measuring your IOFC, especially if you don’t have a program like Feed Watch or EZ Feed, being armed with this information will be huge! Even if you have a feed software program, it will equip you to do a “physical measure” periodically, just to check for accuracy. You can also use the worksheet in our program to measure your actual feed costs in a very straightforward manner.

Next time, I will be explaining the benefit of knowing your “Why” and how this all fits in with measuring your Cash Flow and Income over Feed Costs. All three of these items are instrumental to “Finding Your Profit.”

“How can I get past this challenge?”

Do you ever find yourself having difficulty being optimistic? I think we all do at times. Of course, not when we are getting in excess of $20 per cwt for our milk, but how about when milk prices are far less positive, as they were from 2009-2012? You might want to save this article for those times… What is the real problem with this? Don’t you have a right to be pessimistic during those times? 

Author Steve Chandler, in his book entitled 100 Ways to Motivate Yourself, states: “Motivation comes from thought. Every act we take is preceded by a thought that inspires that act. And when we quit thinking, we lose the motivation to act. We eventually slip into pessimism, and the pessimism leads to even less thinking.” The real problem lies with our inability to snap out of this mode and thus focus on the challenge we are facing.

Chandler gives an excellent example that we all can probably relate to. A pessimist decided to clean his garage one Saturday morning. However, when he looked into the garage, he was immediately overwhelmed and cried, “’No one could clean this garage in one day!’ At that point the pessimist slams the garage door shut and goes back inside to do something else.” For a pessimist, it is either perfection or nothing.

The optimist, however, after looking at his garage, continues his thinking. “’Okay, so I can’t clean the whole garage,’ he says. ‘What could I do that would make a difference?’ He looks for awhile, and thinks things over. Finally, it occurs to him that he could break the garage down into four sections and do just one section today.” Over a period of four weeks he will get the entire task completed. Sounds like a solid plan!

Don’t we all have a neighbor for whom everything always seems to go right? Could it be his thinking process? Consider one decision that you are presently being faced with. Be sure to remind yourself that there is, indeed, an answer to your challenges. Perhaps you are concerned about finding the financing you need to expand your business. Can you break it down into sections, just like cleaning the garage? Here is an example for you.

1.)    Establish an outline of your particular business plans and what you want to do.

2.)    What do you think you will need in terms of financing for capital expenditures and/or working capital for your operational needs?

3.)    Does this project have a positive payback in your specific operation or is it just “what everyone’s doing?” Run some cash flow projections on the idea. Just as three times milking does not work at every dairy, the same may be true for the idea you are considering.

4.)    Are you prepared to go to one or more banks and present your ideas? Have you fully outlined all aspects of your plan and made certain that your financial reports are up to date? If not, talk to your accountant about getting updated accrual financial statements for your business. Lenders love to see them because it provides them with a much clearer picture of what is actually taking place in your business. You should want these, too, to make sure your costs are in line with the rest of the industry.

These four steps should serve as a guideline of how to approach your business hurdles, whatever they are. Remember, when you face a business challenge, stay optimistic so you remain open to all possibilities. The primary reason to remain optimistic, as I said earlier, is that there is an answer. You just haven’t discovered it yet. Author Steve Chandler adds the following advice:

“If you catch yourself brooding, worrying and thinking pessimistically about an issue, the first step is to recognize your thoughts as being pessimistic. Not wrong or untrue – just pessimistic. And if you are going to get the most out of your bio-computer (the brain), you must acknowledge that pessimistic thoughts are less effective… If you really want to open your life and motivate yourself to succeed, become an optimistic thinker.”

The next time you are faced with an important decision within your business, why not give this process a try?

What Would Croesus Actually Do?

Several years ago, I wrote an article entitled “What would Croesus do?” and received extensive feedback regarding that text. The story of Croesus begins with the following characteristics. First, he is a King and is surrounded by some brilliant people. Additionally, while his kingdom has occasional problems, he has unlimited funds to solve them, so, as you can imagine, Croesus and his court are always capable of finding solutions. They have no financial limitations to overcome. 

In their book Why Not? How to Use Everyday Ingenuity to Solve Problems Big and Small, authors Barry Nalebuff and Ian Ayres tell the story of Croesus and his ability to successfully overcome any problem. However, they go one step further by answering the question about what you can do to solve challenges when you do not have unlimited funds, like most of us.

Their process, while simple, is two fold. First, come up with the solution to a problem as if you had unlimited funds, and write it down. Next, since we do not have unlimited funds, think of less costly solutions to this same issue. Now, that is the challenging part, but Nalebuff and Ayres also point out that after you have followed the King Croesus approach, as if you had unlimited monetary resources, you are definitely better equipped to come up with a less expensive solution. In fact, it has been their experience that you may even discover a solution to another challenge you are facing simultaneously.

Here is an example of this happening with a prospect recently. They had a problem. Their “Supplies” cost had been going through the roof, but they couldn’t figure out why. After reviewing their numbers more closely, we discovered that they were using a new product that insured cleaner teat ends and better overall sanitation in the milk barn. This new product had, in fact, improved udder health and had lowered their Somatic Cell Count to 125,000, but they were wondering if they could afford to continue its use…

It was supposed to be a replacement for another previously used product. Yet, they had neglected to discontinue their prior product. Was the new one effective? Absolutely! Was it free? No. In fact, while it clearly worked, it was quite expensive. Fortunately, using it was less expensive than utilizing both it and the item that it was supposed to replace. Thus, as you can imagine, we had found the Supplies cost problem, because using both was like wearing a belt and suspenders. While either of these can be effective alone, you will not need both to keep your pants up.

Recall that the Why Not? authors had suggested we can often find an unexpected solution to another challenge when we use their process. In the case of the producer above, we also learned that several feed additives should have been eliminated after they started a vastly improved job of covering their silages and harvesting their crops at the most optimal time. Guess what? Some of these items, while they were expected to be discontinued, had in fact still been purchased. This is a good example of finding another solution while you are focusing on an entirely different problem.

Both problems were solved by studying their numbers very closely, and, in comparison to the budget and the goals for their operation, determining what they actually had to spend. You can use QuickBooks, Excel or some other program, but, most important, make sure you review all of your costs, closely and often. While we are in good times now, that could change. Besides, your objective should always be to maximize your bottom line profits, not make sure that you spend it all. I know most producers don’t like to pay tax, but please remember that the tax man doesn’t take it all in taxes, just a portion.

Finally, I know that everyone wants to boost their efficiencies, but don’t forget to drop the prior “solutions.” Just use your best judgment, and remember that none of us are King Croesus with unlimited funds. Study your marginal costs and returns. I think you’ll be glad you did. 

Where Did All the Cash Flow Go?

Has your operation returned to a state of positive cash flow yet? As I watch my Clients’ cash flows in 2013, I am observing that most of them have started to achieve positive cash flows in their business at this point. For the few who have not, they are getting closer to a breakeven level.

Once again, I ask you to consider if you have hit your breakeven point yet. Perhaps, more significantly, if not, what is keeping you from getting there? With feed costs dropping by 30% or more these past two months and milk prices at relatively sound levels, you should be seeing some progress. If you aren’t, take a closer look at two major cost areas.

First, make certain that your non-feed costs have not become out of line. Some key areas to look at include Supplies and Labor. For some reason, these two items can often get out of alignment whenever milk prices increase. Here is my theory: When milk prices climb, some producers begin to think that they can probably afford to get that “one extra guy” their employees have been asking for. Unfortunately, along with an extra employee comes additional Workers’ Compensation, Taxes, Benefits, and possibly Health Insurance!

On the supplies front, it always seems that when milk prices climb, the cost of these items also jumps dramatically. I am not blaming the companies selling you these supplies. It simply becomes more important than ever to watch these costs in an effort to keep them from getting out of control.

The best way to keep these items under control is to complete an annual budget and then compare your year-to-date results against the budget to see how you are actually doing. Then, as a follow-up, look closely at what is either helping or hurting your bottom line. Is it something you can change? If so, just do it!

The second item to check is your cost of servicing debt in your business. If you are spending over $1.00/cwt on Interest Expense, take a close look at why that is the case. Is your herd or feed debt too high because you have too many heifers in your herd? Are there other assets you could sell to reduce the debt load on your lines of credit or other short term loans?

Occasionally, I see people who know they have an issue with their cash flows but who seem unwilling to change anything. Don’t worry about offending your salesmen. They will be happier with slightly less of your business than having none of it because you were forced to sell out. And, remember, your bankers are watching your performance more than ever today. Why not leave them with a positive impression? Think about it.