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.