As we have proceeded through the year 2009 in what has proven to be a genuine “management test” for most dairy operators, the question I am asked most often are, “How can we do a better job of running our business? What is the secret to stronger returns in a milk market like the current one?” As part of my response, I return to what I consider the basic framework for successfully running any business
Develop a first class Management Team. When it comes to developing a strong management team, it is critical to hire the very best people you can afford to assist you in the daily operation of your dairy. Remember, these are the people who will provide the foundation for the success of your business. They will be the ones who implement your overall plan, so this is not a good place to cut costs. Invest in their knowledge of how to do their job better. Once I had a meeting with a business person who claimed there was nothing more costly than spending money to train workers and then have them leave the company. However, I assured him that there was one thing more expensive, and that was to not train employees and have them stay! Some other sources for key management input are your veterinarian, nutritionist, banker, accountant or suppliers! All of them see numerous operations regularly, so why not benefit from their experience?
Control costs as much as possible. Whenever a business cannot directly control the selling price of its product, they become “price takers.” That is the case with most dairy producers. Since most producers cannot control the price they receive, they have only two options available to boost their profit: they can either cut costs or increase the volume of milk sold. Increasing the volume of milk sold can be the answer at least in the short term, for many producers. However, as illustrated during the past year this can often result in an over-supply scenario, which only depresses the price that a dairyman receives even further. The alternative is to cut costs wherever possible. The challenges here are: What costs should be cut first? And, how much can I afford to cut these various costs?
Improve your dairy’s balance sheet by focusing your business. Often, when I see an operation struggling to make cash flow, it is a direct result of decisions previously made by management. While I realize that milk prices during 2009 have left a lot to be desired, some operations that are hurting this year were already short on cash flow in 2008 despite record high milk prices. The best solution for this is to improve the balance sheet of your operation by focusing like a laser. What does that mean? Simply stated, decide what business we are in. Also, what business should we be in? Are we running a dairy, farming numerous acres, custom farming, raising calves, some of these, all of these, or what? I suggest that we need to focus on the tasks we do best and leave the rest to the experts within those areas.
Develop a business strategy that fits your operation. It’s been said many times that people don’t plan to fail, they simply fail to plan. I strongly recommend that you decide where you want your business to go and consult closely with your management team about how you can best achieve those results. Finally, once you develop a strategy, commit it to paper and review it periodically. Committing it to paper and tracking results versus your projections yields the best results.