Current Progressive Dairy digital edition
Advertisement

A business plan to bring it all together

John Frey Published on 31 October 2013

Those who grew up in the ’80s or before may remember the popular TV series, “The A-Team.” In that series, the team patriarch John “Hannibal” Smith coined the phrase, “I love it when a plan comes together.”

At the Center for Dairy Excellence, we have the opportunity to watch time and time again as dairy farm families experience the benefits of seeing a plan come together.

advertisement

advertisement

And yet, the portion of dairy farm operations that have written business plans in place continues to be in the minority.

In 2012, the center joined the Penn State Extension Dairy Team, University of Pennsylvania and the Saint Joseph’s University School of Veterinary Medicine to do a comprehensive “Pennsylvania Dairy Futures Analysis.”

That analysis included a producer survey that was sent out to dairy farms in Pennsylvania. Of the 1,000 producers who responded, more than 60 percent said they work with either a financial consultant or accounting services for their dairy.

However, less than 20 percent said they have a formal business plan, transition plan or risk management plan in place on their dairy.

While this figure includes only producers in Pennsylvania, it does point to an issue that exists across the U.S. dairy industry as a whole.

advertisement

Dairy farm families do understand the value in working with a financial consultant, and they rely heavily on those consultants to help with bookkeeping and accounting for their dairy farm business.

However, they’re not taking it one step further to work with that consultant to essentially answer two questions: “Where do we want to be five to 10 years from now?” and “How are we going to get there?”

As part of the larger dairy analysis, the project team identified 20 prescriptions that we believe would catapult the Pennsylvania dairy industry toward improved strength and profitability.

One of those prescriptions focused on developing a business plan and encouraging every Pennsylvania dairy farm to identify one of four basic business strategies as a platform to strengthen the business.

Any farm business, whether it is located in Pennsylvania or anywhere in the country, could benefit from this prescription.

The prescription reads, “Each dairy farm should identify one of four basic business strategies as the platform to grow farm profitability by 5 percent to enhance net income and return on assets.”

advertisement

The four basic business strategies identified in the analysis included:

1. Increasing milk production per cow

2. Increasing cow numbers (either through internal growth or external expansion)

3. Improving cost and price efficiency

4. Diversifying into other activities

While growing cow numbers is not the right option for every dairy, and not every producer wants to diversify into other enterprises, it is important that every dairy farm family has a strategy to continue to grow and evolve.

That strategy provides the foundation of a business plan, and the business plan is what’s going to carry your business through challenging periods, propel it through the approval process for financing and provide internal clarity on the direction in which you are heading.

So how do you develop a business plan?

At the center, we recommend you start by identifying a business planning consultant who you trust, who understands your business and who you know will be comfortable providing you with honest, constructive feedback on your vision, your goals and what it will take to accomplish them.

Over the past few years, we have offered a program called the “Dairy Decisions Consultants” program to connect dairy farm owners and managers with consultants who can help them develop business plans.

We are pleased that nearly 100 farm families have taken advantage of this resource to enhance their businesses. If you’re located in Pennsylvania, we encourage you to call our office to learn more about the “Dairy Decisions Consultants” program and how we can be a resource for you as you develop your business plan.

For those who are not located in Pennsylvania, reach out to your lender, extension office or small-business association. They can offer recommendations on who you can work with to develop a business plan.

Who you choose to work with on developing the business plan is as important as what you put into that plan because they can provide outside perspective to benefit your decision-making process.

The next step to developing your business plan is essentially to identify the following:

• What’s your vision? In other words, where do you want to be 10 years from now?

• What’s your mission? In other words, what drives you to get out of bed every morning and do what you do?

• What are your goals, or those tangible marking points that you focus on to take you from where you are to where you want to be?

Your mission statement can be as simple as “We produce a quality product while providing optimal care to our animals.” It just has to be something all partners or key stakeholders can agree with and support.

This is where working with a consultant can be helpful because they can make sure everyone’s viewpoint is incorporated into the discussion.

The vision statement is where you get to dream. It is where you articulate your dreams and hopes for your business, and it serves as a reminder of what you are trying to build. A vision statement should capture your passion and inspire you to move forward.

The goals you set for your business in the business plan should be specific, strategic and measurable. They should have a timeline associated with them, and they should be something you can look at periodically to use as a measurement of success.

For instance, a goal should not be just to “grow the herd internally.” It should be: Expand by 10 percent through internal herd growth within a two-year period.

With each goal, your business plan should identify the strategy on how you are going to accomplish it. For instance, improving calf mortality rates, lowering culling rates and improving herd longevity may all be part of your strategy to grow by 10 percent.

Having the right consultant in place can help you develop a business plan to guide your business toward greater prosperity and growth. It can also help your business continue to be viable in a volatile marketplace.

In 2010, the center awarded a grant to 10 dairy farm operations to utilize a team approach to planning for a business transformation.

As we fast-forward to 2013, those 10 families are nearing completion of business transformations that ranged from moving forward on a modernization plan to accommodate more family, to installing a methane digester that handles manure from three farms, to doubling or even tripling herd size, to building a new robotic milking facility that produces its own electricity.

No matter what their transformation involved, a common thread exists among all 10 dairy businesses.

Ask any one of them one thing that they learned through the process, and they’ll tell you they are amazed to see their dream coming to fruition and the collective business planning process they went through with their transformation team was essential to that success.

In other words, they love the way their plan came together. Hannibal couldn’t have said it better himself. PD

To learn more about resources from the center, visit the website .

00_frey_john


John Frey

Executive Director
Center for Dairy Excellence

LATEST BLOG

LATEST NEWS