Three experts share what dairies must do to survive
For the past year, dairy management advisory specialist Robert Matlick, CPA Mark Brady and attorney Riley Walter have blogged these messages for Dairy Today eUpdate’s "Fiscal Fitness" column:
Financial management is critical to managing your dairy today.
- - Volatility in milk and feed prices has heightened the need to focus on the business side of dairying.
- - The financial distress of many dairies shares common threads that likely could have been avoided.
At Dairy Today’s Elite Producer Business Conference in Las Vegas, Nev., in November, the three experts reiterated their call for better financial management. They also recounted painful observations of distressed dairies they’ve worked with.
Here are a few of their financial management observations.
|Robert Matlick is a partner in the accounting firm of Frazer LLP, based in Visalia, Calif.
Matlick: "We want to see the dairy operator become more of a businessperson. Take a 4,000- to 5,000-cow dairy. That’s $20 million in gross revenue. Most businesses of that size have a full accounting department. You don’t see that on these dairies.
"I’ve got one client who wants to get outside with the cows because he says it’s his therapy. I tell him to get back in the office.
"I know we’re all subject to these volatile times, but planning is so important. When you sit down with producers in bankruptcy situations, some don’t have a clue where to start. Is that any indication why they end up in bankruptcy court?
"Dairying has become a business, where you have to plan. Every producer should have cash-flow projections for six to 12 months into the future. These are developed from historical data as well as input from the nutritionist, commodity brokers, veterinarians and perhaps business consultants.
"They should include all cash outflows and inflows, including capital improvements, living expenses, risk management strategies, principal reduction and multi-month feed inventory purchases (silage and hay). These should be updated monthly with actual numbers and variances in excess of an established amount researched.
"The last step is to add one month to the projection and make any alterations to upcoming months with new information that has been learned in the recent past. You should also have an inventory management system in place to measure feed that comes into the business (whether purchased and/or grown), and feed actually fed and consumed. Remember, more than 50% of your cost structure is feed."
- December 2012