Is Your Business Positioned for Expansion?
To answer that question, conduct a business performance analysis. It pinpoints strengths and areas to improve before you change your dairy business.
By Jason Karszes and Wayne Knoblauch, Cornell University
An expansion of anything – your family, your charitable giving, your volunteer time or your workload – exacts a price. The same is true when you expand your dairy business. It will require you to manage your time and resources better, just as expanding your family or volunteering your time does.
The demands are easier to handle if you expand for the right reason – because you want to, not because you feel you must to keep up with neighbors or ahead of creditors.
To assess whether you and your business are positioned to handle expansion, evaluate each performance factor in the following worksheet. Circle the response that best describes the performance of your current business in each category. When completed, you can determine areas in the business that may need improving before changing the operation. The more circles you place in the "Excellent position to consider dairy expansion" column, the greater the probability for a successful expansion.
Evaluate each performance factor individually. If there are areas that need improvement but can be managed as a change takes place, delaying the change may not be beneficial. But remember to focus on those areas needing most attention, you are only as strong as you weakest link! Look at how change may alter each factor. This helps you determine what action may be most profitable in the future.
After the change has taken place, use the form again to assess the impact that the change had on the overall performance of the business. Is the position of the business improving? Are you meeting your goals and expectations? Use the form again or better yet do a financial analysis such as that provided by the Cornell Dairy Farm Business Summary.
This table is a simplified method to look at the overall condition of a business. As with all change, please research the issues effecting your business before making any changes.
Additional Resources:
- Northeast Dairy Farm Summary, Farm Credit Associations and Banks. Available at local Farm Credit offices in the Northeast.
- Business Summary, New York, State and Regions, Cornell University, Department of Agricultural Resources, and Managerial Economics, College of Agriculture and Life Sciences, Ithaca, NY 14853. (607) 254-7412.
- Farm Management: How to Achieve Your Farm Business Goals, 1989, Yearbook of Agriculture United States Department of Agriculture, Superintendent of Documents, United States Government Printing Office, Washington, DC 20402
- Your Dairy in Transition, Cornell University Media Services, Resource Center, Building 7, Business and Technology Park, Ithaca, NY 14853. (607) 255-9946.
Farm Business Performance Analysis Worksheet
| Business areas that need improving before considering expansion | Expansion has potential but success can be improved with better management | Excellent position to consider dairy expansion | |
|---|---|---|---|
| Size of Business | |||
| Average no. of cows | Decreasing | Remaining the same | Increasing |
| Average no. of heifers* | Decreasing | Remaining the same | Increasing |
| Total milk sold, lbs. | Decreasing | Remaining the same | Increasing |
| Rates of Production | |||
| Milk sold per cow, lbs.** | <18,000 | 18,000–22,000 | >22,000 |
| Labor Efficiency | |||
| Cows per worker | <30 | 30-40 | >45 |
| Milk sold per worker, lbs. | Decreasing | Remaining the same | Increasing |
| Cost control | |||
| Operating cost of producing milk/cwt. | >$11.50/cwt. | $10.50 -11.50/cwt. | <$10.50/cwt. |
| Grain and concentrate as a % of milk sales | >30% | 25–30% | <25% |
| Profitability | |||
| Net farm income without appreciation | Decreasing | Remaining the same | Increasing |
| Financial Summary | |||
| Debt-to-asset ratio | >40% | 30–40% | <30% |
| Farm debt/cow | >$2,500 | $1,500 - $2,500 | <$1,500 |
| Management Potential | |||
| Perform Financial Analysis | Will do if I must | Is OK if other work is done | My priority |
| Economic Decision Making | Will do if forced to | Is OK if nothing else to do | My priority |
| Managing Employees | Would rather not | Can if I must | My priority |
| Land/Water Resources | |||
| Forage Production | Often short of forage | Amount of forage OK; quality marginal | Sufficient quantity and quality |
| Manure Storage | Rely on daily spread | Location and capacity not ideal | Ample storage capacity |
| Water Availability | Poorly located well with limited supply | Could expand supply | Amply supple of quality water |
| Nutrient Management Plan | Will ignore doing | Will do if someone knocks on the door and I must | Is in the works with certified planner |
Source: Adapted from My Dairy in Transition
*Average number of heifers rating applies to farms that raise own replacements and don’t continually purchase additional young stock.
** Large breed, milked 2X and with no bST used. If milked 3X under different management system, production should be 23,000 lbs. or greater.