Chapter 1: Welcome to the Age of Possibilities
Some people might think that, as a former banker and now as a finance and strategy consultant, I have had the opportunity to learn many lessons by observing and financing the most successful people. To some extent that is true. However, I have also come to realize that you learn a lot from spending time “in the trenches” with those prospects and clients who have had their plans interrupted by various events.
I have had the unique opportunity to play an instrumental role in 11 major financial turnarounds during the past seven years. Most of these were situations where there was only one way to go, and that was up. Some of them were characterized by banks attempting to collect upwards of $6 million to $10 million in distressed loans. At the same time, vendors were pushing to collect Accounts Payable of $500,000 to over $1,000,000. Frankly, some of these producers had no idea where to turn next.
Chapter 2: MANAGEMENT TEAMS AND YOUR SUCCESS
Since starting Success Strategies in early 1999, it has become apparent that one of the most important tasks that a dairyman or a business can accomplish is that of using, what I call, Management Team Meetings. I have been involved with many financial turnarounds in the past seven years and these are only possible due to major changes in the areas of herd management, business management, feeding and breeding improvements.
There are four primary steps associated with this turnaround process as you will see in the following article from the December of 2000 issue of Western Dairy Business.2 Implementation of the various changes can differ somewhat from one operation to another. However, without exception, I have found each of these steps to be instrumental in improving the financial outcome of the businesses with which I have been involved.
Chapter 11: PLAYING TO WIN
There are a multitude of challenges being faced by dairymen today. Not only are you being challenged on the financial side due to low milk prices, you are also facing major hurdles in the areas of environmental stewardship, higher taxes, ever rising insurance costs, and other new regulations, just to name a few. We presently are selling our milk to a market that has an ongoing oversupply of product. Thus, it is critical that we consider how we got to our present state and what we will need to change to allow each of you to be more successful going forward. Consider this. In 1962, General Motors produced about 2.25 million cars with 4.5 million employees. Today, the same company produces 4.5 million cars with only 725,000 employees. How can this be? A lot of this change is due to gains in technology.
The same thing is happening in the dairy industry. As productivity rises, we are seeing higher production per cow, fewer but larger herds, and total milk production soaring. These huge productivity gains are being made possible by something called “Systems Integration.” Think about that for a moment. Along with the tremendous strides made in genetics, herd health, and nutrition, technology has allowed us to accomplish much more in a shorter period of time. This is true in the computers we use, not only on the financial side of your business, but also within feed management, milking systems and production & herd health tracking. So, what can we do to boost profits?
When you cannot control the price you receive for your product, you are a “Price Taker.” In essence, you do not know what you will receive for your milk until after it has left your dairy operation unless you have it contracted at a previously agreed upon price. However, you still have two other controls over your profits. Profitability can be improved by lowering costs (as long as you don‟t impair your dairy in other ways) and by boosting your volume of milk shipped. Can everyone do these two items to the same degree? Probably not. However, every producer needs to examine his cost of production very closely.
Consider who is thriving today. It is the producers with the greatest efficiencies, i.e. those who are on top of their costs/cwt, and who are aware of both feed efficiency and the number of cows milked per hour. Consider, once again, the formula for calculating your Breakeven Point:
BE Point = Fixed Costs/[(Revenue/cwt – Variable Costs/cwt) X # cwt shipped]
If your Fixed Costs total $100,000, and you are getting $10/cwt with variable costs of $9.50/cwt, your
breakeven level is 200,000 cwt.
BE = $100,000/[($10 – 9.50) X # cwt]
$100,000 = $.50 X # cwt
# cwt @ BE = 200,000
Once again, the key will be to spread out the Fixed Costs over as many hundredweights as possible. Even if you cannot control the Price per cwt, you certainly can control both your Fixed Costs and your Variable Costs per cwt, at least to some extent.