In 2016 dairy operations everywhere are coming face to face with the pressure to “go big or go home.” Big business impacts all areas of our daily lives.
- Entertainment is big business.
- Politics is big business.
- Computerization is the biggest business of all.
It isn’t surprising that the dairy industry is consistently implored to use big business principles when planning for the future.
Is “BIG” Synonymous with “BETTER”?
Big may not always be better, but good business sense is recognized as the foundation that any viable enterprise is built upon. To support two or more family units or partnerships, the dairy must have cash flow, infrastructure, and good management. Scrutinizing financial considerations and long-term viabilities is necessary before committing to growing bigger. These two areas are included in the following checklist of nine items to consider when deciding if expansion is right for your dairy operation.
- Are you READY for the RISKS?
Managing risk and capitalizing on opportunities are two ways used by the most successful businesses to separate their operations from those that are fading fast. Sometimes weighing risk is instinctive and is done almost without conscious thought. But defining risk is crucial to seek out solutions and gain confidence in deciding whether to grow or to stay the same? People who are risk-averse may consider that avoiding change is the safest route. But, as the dairy industry changes and grows, maintaining the status quo could well be the riskiest choice of all.
- Can you IDENTIFY the OPPORTUNITIES?
Before taking even one step forward, it is well worth your while to take a quick look at where you’re standing right now! Ask yourself if there is something that you could be doing better? Even if getting bigger is the right choice, getting better before going bigger could smooth the way for expansion. For example, maximizing milk production per cow is the place to start. Do you know the industry averages for milk, fat, and protein yield? Where does your operation fall? If you are below average, address that problem before considering expansion.
- Are we talking DAIRY LIFESTYLE or DAIRY LEGACY?
Expansion is going to affect your loved ones. There is no way that a 24/7 dairy operation can be separated from the family side of the operation. Expansion decisions may give you more time with family if more staff can be added to complete the work. Perhaps more family will be brought onto the team. Do you want more help? More time with family? More revenue? The expansion decision is going to affect your loved ones: both the current generation and the next ones. Are you building a dynasty or planning for retirement?
- What’s HEALTH Got to Do with It?
Expansion depends on the health, creativity and physical and mental stamina of its leader. Take time for yourself to guard against burnout. Stress and burnout lead to illness, relationship breakdowns and more. Stay healthy so that you can steer your ship through expansion to success. But don’t forget to give the same consideration to each team member. Staff –whether family or not – need to feel that all aspects of their contribution matter. They need to feel empowered and that they are contributors to the success of the dairy farm. They need to feel valued if they are to support and sustain the transition ups and downs which are a normal part of the expansion process.
- How Good Are Your Management Skills?
Expansion is complicated. Realistically, you are looking at expansion not only of herd size and milk production goals but also changes in the day to day duties that make up your work day. Of course, hopefully, it includes expansion of your bottom line. But, before that, it could all fall apart and cause panic and pandemonium, if you do not have the management skills to keep everything – cows, people and equipment and systems– running smoothly. An expanded operation means dealing with more of everything — including problems. Are you task-oriented? Or people-oriented? Are you solutions oriented? Can you give up areas of responsibility to others? How prepared are you to deal with a bigger and much different job than you have been used to in the smaller operation?
- Is your Infrastructure Solid?
Okay! You have done your homework. You have the people and the will and the plan to expand. But do you have the land?
If you don’t have or can’t buy land, can you buy the forages you will need for an expanded herd? Realistically we should have started with land availability because it is the single most important element that will govern the success or failure of your expansion plan. This could be a deal breaker. Not enough land or availability of feed. No expansion.
Other factors of your infrastructure are the next challenge. Do you have manure system? Is there enough feed storage? What parlor capacity do you have for your expanded herd? Are you ready to handle the need for more or better equipment? What maintenance plan is in place now and after the expansion. Failure to carefully consider any of these can bring your forward-looking expansion plans to a screeching halt. If you’re breathing a sigh of relief, because you already have considered all of these, then you’re in great shape. However, before moving on decide how you will use the dollars saved by economies of skill to develop an even better infrastructure that includes employee training, education, and remuneration as well as investment in new technology. The bottom line is more productivity throughout the entire operation.
- Succession Planning is Essential
At, its most basic, a succession plan is a documented road map for your dairy. When it’s in place, it provides a guide that partners, heirs, and successors can follow in the event of your death, disability or retirement. Are you mentoring the next generation? Does everyone know who will be responsible for the next stage in ongoing farm operations? Simply growing without planning for a smooth succession, means you are not taking advantage of the full potential of your dairy’s development. Having a well-ordered succession plan in place means that history, education, and goals can be a part of the learning experience of the next leader on a daily basis. Many dairy operations experience their most significant challenges when it comes to a sudden situation where the hand-off of management comes as a shock or without understanding or preparation.
- Can you “SHOW ME THE MONEY!”?
You may have clearly determined that expansion is the best way for your dairy to remain viable and sustainable but you are not fully prepared to achieve that goal until you prepare for the banker? Of course, it’s a tremendous advantage if your banker has the background to understand a dairy operation. In many cases, this doesn’t happen. Nevertheless, thorough preparation can make it possible to satisfy the bankers’ questions and at the same time provide a learning experience for this lender. Expansion may bring new timings of payables and receivables and create greater financial strain. You must have a strategy for controlling costs and keeping control of debt. Be ready to disclose fully all factors relating to your request for expansion. The list will include, but won’t be limited to, how much working capital is needed to long-term cash-flow assumptions, transition and construction-phase issues, contingencies and having a well-documented plan. The better you can quantify these areas, the more likely your expansion plans will be approvable and bankable.
- Technology Is VERY Important!
limitations on the dairy that could limit expansion of your dairy. Operational technology can overcome challenges of available labor. Training your staff in new dairy technology is important to maximizing the potential of your operation, whether it involves 100 cows or 1,000 cows.
- It’s Up to You!
Don’t wait until the decision to expand has either passed you by or is forced upon you by circumstances. Planned expansion is the best way to ensure that your dairy is profitable.
The Bullvine Bottom Line
At the end of the day, there are only two choices: success or failure. It’s a lot of pressure but with foresight, preparation and the courage to follow your expansion dreams, you too could reap the benefits of bigger!