Dairy farm businesses are under extreme pressure. Producers everywhere are looking to boost their profitability wherever possible.  When it comes to growing profitability, the goal is to use simple, common-sense tactics for cost savings that go directly to your dairy bottom line.

Forget the TOP Line – YOUR Profitability starts on the BOTTOM Line

Too often we mistakenly focus on the topline (gross revenue, sales, even wins in the showring). That is costly and pays attention to the wrong end. Start by looking to the bottom line. The bottom line focuses on expenses. Not just the cost paid out but the benefits gained. And remember it’s the little things that count – a ten percent increase in profit is more likely to come from twenty things that contribute one-half percent each than from one thing that gives you the full 10 percent.

Here are 12 tips to start you on your way to a better bottom line and more profitability.

1. Bottom-up budgeting. The first thing to think about is the net that your dairy enterprise must earn. Everyone involved in the dairy needs to contribute to this investigation of what is absolutely required to sustain a profitable operation. Communication of successes, challenges and future potential must be openly communicated. One of the primary advantages of bottom-up budgeting is that it is traditionally very accurate. As long as everyone takes care to look responsibly at their area of the operation, it will generally come out with an accurate estimate of costs. It is important that all input be received – without padding.  Accuracy gives the foundation to build on. Padding could defeat the whole purpose!
2. Set targets and achieve You need to be looking at key performance indicators (aka KPIs) and measuring your dairy against them. It is essential to know what you are comparing to so you can work towards it. . When possible, try to quantify the results you are aiming for with quantities, percentages, dollars or time. This will allow you to measure what you have achieved and readjust accordingly. Ideally, you should set goals for the long-term, and then mini goals that are short-term and ultimately tie in with the bigger picture. Differentiating between the two will help you from becoming overwhelmed or discouraged, and will also assist in always keeping the long-term perspective in mind when the day to day threatens to make you lose sight of it.
3. Make sure the goal is in the right hands. This means the goal must be achievable as a result of your own hard work and determination, or with the willing assistance of someone already in your network. If you have no control over the outcome, it does not make for a realistic goal. Everyone has a role in meeting goals. Each individual, each team and every dairy animal will contribute to the bottom line profitability if they are assigned measurable goals that are linked to that outcome. In order to increase motivation, employees need to be allowed to participate in the goal-setting process. With agreed upon actions and measurable outcomes everyone can identify how their contribution contributes to the success of the dairy operation. Most importantly, when approaching completion of a goal, set a new one.
4. Beware of false savings. When times get tough, it is tempting to cut back on expensive inputs. Fertiliser or other soil treatments might go on the chopping block. Grazed pasture is the cheapest feed for dairy cows.  When ensiled for the winter it is the lowest cost feed. Saving on crop input costs could indeed be false saving. A better way of saving money would be testing soils tri-yearly and applying the right quantities of slurry, farmyard manure and fertiliser. False economies are everywhere, and the way to avoid them, as much as possible, is to take a strategic approach to thinking through them. Economies of taking away feed additives; doing without automation or adding more free labor (i.e. family) could actually cost more in the long term.
5. Shop around. Make sure you get three quotes for everything that is purchased for the farm. Don’t forget to look at electricity, labour and even borrowing money. Getting quotes from power companies is easy, or you can use a broker. If you use self-employed labour or a contractor getting quotes can be appropriate or comparing other affordable options. Quotes for money means, simply, talking to other banks than your own. It’s in your profitability’s best interests to compare all suppliers on the basis of price, capabilities and performance. It’s false saving to have a cheap price that doesn’t provide results (see #4).
6. Milk your milk check. Depending on particular countries, provinces and states .. there are many different rules to meet in order to receive your milk check. It is in your profitability’s best interest to increase the milk price in whatever ways are available to you. Take advantage of all the bonuses available. That could be for butterfat, protein, quality or pattern of supply. Seasonal incentive pricing exists in many areas so take advantage of it also!
7. Make good on your grazing. Some advisers suggest that now is the time to intervene if your grass is not at its best. With half the season left you could still fix it. Mow and either feed the grass or bale Fertilise the field and get it back in the grazing rotation within 30 days. Also reconsider those late cuts. They are always more expensive to harvest as silage, so graze it or make dry bales to reduce costs.
8. Manage the short term AND always make sure you have a plan B in every scenario. A plan is the one which has been put on the piece of paper. If it is not on the piece of paper, if it is not in black and white then it is just some random set of ideas and not a If you are really serious about creating a profitability plan, you will make efforts to write it down somewhere and share it with others. Of course, just writing your plan down on paper won’t make it “profitable”. But it is a good start.
9. Always be better. In many countries, dairying is definitely seeing difficult times but that doesn’t mean there aren’t opportunities for improvement.Set some goals for changes that you want to make to your dairy ­
   1. Continuous improvement should be the number one “VALUE” of the profitable dairy operation.
   2. Continuous improvement is linked with rewards and recognition.
   3. Continuous improvement should be supported by continuous training that is measured for effectiveness.
10. Calculate the ROI of everything you do. ROI is a more important metric than any conversion rate simply because it takes ‘COST’ into account. As long as you take ‘Cost’ into consideration, you can’t go wrong with improving your business bottom-line. Calculate ‘cost per acquisition’ for all of your dairy (show string; advertising; genetics). Even calculate ROI of all of your meetings, business travel and lunches. What about the days it takes for you to do all your accounting? Equipment repair? Building maintenance? Does your milk production suffer when you have to wear one of your other hats? Vet? Office manager? Field manager?
11. Hire an Expert. There is always an opportunity – lost or gained – when you choose to do things yourself in which you are not an expert or when you hire someone who is not an expert.
    While you may gain by not writing a check to someone else, you could still be putting money down the drain. When your bookkeeping, animal health protocols, feed supplies or equipment maintenance are sub-par, any one of them could be substantially reducing your bottom line and be costing you your time, your health, mediocre results and even complete failure.
    Hiring an expert may not be profitable at first but, in the long run, can be the best bang for your buck. Not only will you recover your entire hiring cost sooner but you will also make a lot of money on top of that, and you will continue to do so for an extended period. However, all of this can happen only when you first understand that you can’t be an expert in everything and that you need someone who is really an expert in their field.
12. Manage for Improvement. Efficiency is gained when revenue per cow grows.  Technology, genomics, robotics all are tools, so your herd can become more productive and you don’t have to add new headcount to grow.  What if you could replace your lowest 10% of performers with new cattle that matched your top 10%?  This would result in an enormous productivity boost at virtually no incremental cost.  There are many techniques to improve productivity, but the point is that constantly growing headcount certainly will result in overhead growth but won’t necessarily lead to profitable revenue growth. Focus on acquiring or raising only the best animals. Your best milk producers are your most profitable producers. If you don’t know your best producers yet then get to know them ASAP. If you don’t know which animals are driving up expenses …. Find out ASAP. According to the Pareto Principle (also known as the 80–20 rule), 80% of your costs come from 20% of your herd. These 20% of your herd are hurting your bottom line. The other 80% are your high-value You need more of these best producers to improve your business bottom line. So gradually start reducing your herd of those high expense producers. Aim to breed more cattle targeted at reducing your most limiting genetic factor or factors (reproduction, feet and legs, calving ease).  It is not really rocket science, but some dairy business owners and managers just don’t get it. They remain busy in acquiring low-value animals because they have never made the effort to identify and target their best producers.  Low-value producers — still produce milk — but all milk isn’t equal.  Even though it’s all the same once it’s in the milk tank, there can be quite a difference in the cost that got it that far. The lowest producing cow in the milk line may already have run up extra costs because she was sick as a calf.

The Bullvine Bottom Line
A dollar gained in revenue is an excellent thing assuming it builds profitability. However, remember, only a small portion reaches net earnings.  A dollar saved from cost, however, goes directly to the bottom line.  So move your focus away from the top-line and engage in a systematic approach for improving the bottom line. It’s the best way to ensure long-term dairy profitability and sustainability.

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As the weather turns slightly warmer and our eyes zero in on the greening up of the season, it feels like a good time for spring cleaning.  Wouldn’t it be wonderful if you could profitably apply that urge to financial record keeping on the dairy farm? You don’t have to answer anyone but yourself but here’s another key question: “Did you file your tax return without the mess, stress or bother?”  Or are you still recovering from late night headaches, lost documentation syndrome and the guilt of missed deadlines?  If all was not smooth running in the financial records department, now might be the perfect time to tackle desk drawers, plastic bins and maybe even shopping bags that are overflowing with financial statements, receipts and correspondence. These are the signposts of your record-keeping shortfall! Forget about the annual shame and blame over “how did this happen?” and target a complete turnaround starting now!

1. Stop Crying Over Spilled Milk Records

Don’t blush! You are not alone. Despite the so-called digital age, paper records seem to have multiplied. You only have to watch one or two reality shows such as Clean Sweep, Pub Makeover, or Restaurant Disaster – to learn that unsuccessful businesses have one thing in common.  They do NOT keep good records.  There may be exceptions out there who manage well amid visual chaos, but it is hard to imagine.

It doesn’t surprise me that the owners and managers of struggling businesses are able to recognize, through increasing debt, declining morale and disappearing customers, that they are in trouble. What is surprising is that they keep on doing the same things they’ve always done -namely ignoring the paperwork -while continuing to hope for a different end result.

2. Plug The Hole In Your Milk Income Bucket!

We must get ourselves into the home or dairy office and commit to doing “forensic organizing” among the paper piles. We could be facing a mountain of receipts, stacks of bills-to-be-paid, overlooked notices and, as usual, a huge backlog of filing. Have you ever lost a registration certificate that you know you received, but you just can’t put your hand on? Do you find yourself facing multiple pages of feed bills and yet you’re not sure if this supplier is worth the expense? Have you paid more than you care to admit in late fees and premiums because you couldn’t face the mountain of paperwork? If so, there is a hole in your dairy income bucket.

Yes, too often struggling operations have dairy offices that fall somewhere between an archeological dig and a garbage dump. Nevertheless, that doesn’t mean the correct course of action is to give up and throw it all way. Records are crucial. Indeed, the size of the mountain is not an excuse for mismanagement. The most important feature of well-kept records is that they must be easily retrieved….for reference, legal backup and decision-making and maintenance. You must commit to plugging the leaks caused by mismanaged record keeping.

3. Lost Records Must Be Found

It all comes down to three ways of finding: finding the information, finding a way to store it and finding a way to use it. Ignoring the problem is not an option. So begin by gathering all the paperwork into one place. Having multiple disorganized locations (in the house/in the barn/in the truck) is merely providing an excuse to procrastinate and, even worse, it’s an opportunity for losing things! Once you have gathered all the paper into one location, take that massive pile and — one paper at a time – get it into the proper primary sort: cattle; crops; equipment; bills owing; bills paid. To do these sorts, you could use plastic envelopes or, if the piles are especially huge, plastic bags.  Apply a quick label and all like items can be gathered in one location. Your first quick sort will put everything into only three piles:  “To Do” To File” and “To Read”. When you start to see order forming out of the chaos, you will have taken the first step in recapturing lost money and missed opportunities. If you want to plug up that bucket hole, start by “restoring order”.

4. Records must be Used to Provide Value

There are many ways to keep records.  Some managers use methods that were in effect generations before them —- and are still successful.  Others are adapting to modern technology and revise and streamline their information flow to keep up with the digital age. Regardless of the specific method, the real test of your record management system is measured by one thing.  How useful is it?  The best kept records that sit twelve months of the year in a drawer or file will still be there when the dairy operation fails! Data must be used for spotting trends, used for making decisions, used for revising inventory and used for negotiating terms. Dairy operations are dynamic, and decisions change based on the accuracy and use made of the records that are kept — and used!

5. Paying Bills in the Short Term Doesn’t Guarantee Long Term Stability

You may have decided at this point, that this article has nothing for you.  After all, even though your records are not perfect, you are keeping the bills paid. Finances 101 encourages us to believe that if the bills are paid, all will be well! However, in actual fact, there are other variables that must also be in order before we can ensure that all is well on the dairy farm. Short term solutions like using credit to pay bills or selling necessary equipment might allow the bottom line to remain in the black temporarily, but could prove ruinous in the long run. The three main financial statements – balance sheet, income statement, and cash flow plan — give the full picture and must be maintained and used in conjunction with each other to provide a clear picture all three of the farm’s business situation. Proper usage of these three information sources can only be done with consistently up-to-date and accurate record-keeping.

6. Keep Records Beyond the Simple Cash Flow Numbers

The top 1% of dairy managers separate themselves from average or poor managers by being meticulous about records that go beyond the simple bank balance or bottom line.  These managers are looking for any information that allows informed decision-making regarding economies of scale, herd size, farm structure, capital investment, feed costs per animal and genetics.  They are enthusiastic collectors of any statistic, research or anecdotal advice that could positively affect their particular operation.  These are the managers who seek out formulas such as DE (dairy efficiency) and seek out other industry leading benchmarks beyond milk production per cow.

7. What are Good Records Worth to You?

The challenge for all dairy managers is to figure out the best way to manage the massive amounts of incoming paper and information. At best, the financial disorder causes mistakes, late fees, overpaying, raised interest rates, and debt. At worst, chaos in your finances can destroy your credit simply due to inaction on paperwork stagnating on your desk. Not using information that impacts your cropping, breeding, and genetic decisions, can also impact sustainability and economic viability.

8. You Need to Keep Records Before You Can Break Them!

The more information you have at your fingertips, the more opportunity you have to turn a struggling dairy business around.  With clear benchmarks, goal setting, priorities, you no longer are managing from crisis to crisis.  Each step up in records organization is a step forward for the dairy operation. Not using information that impacts your cropping, breeding, and genetic decisions, can also impact sustainability and economic viability. Whether it is saving on expenses, decreasing vet costs, raising production, reducing overhead or making better use of labor and equipment …. The first step is the same… you must have good records. The three crucial usage steps are: 1. Discover what you need. 2. Prioritize according to your goals. 3. Take Action!

9. Help is Available.

Every manager has strengths and weaknesses. Sometimes it is the perfectionist who falls behind with the false idea that the perfect time will come to do the complete job. It isn’t lack of ability that is causing the problem. It’s inaction. There comes a time when it makes sense for your business to invest in professional bookkeeping, accounting, and back-office support to ensure your records are always kept up-to-date and accurate. Timeliness is the key. Moreover, delegating those tasks that would be better handled by someone else will not only increase your available time, but allow for a more efficient labor structure.

Ask yourself these questions:

1. Do you have the time to do the work required? Will catching up on finances cause you to fall behind in another crucial area?
2. Do you have much experience, knowledge or skills when it comes to making the financial decisions your operation is facing at this Expansion, selling or taking on partnerships or reducing liability may need legal advice.
3. Can you afford to lose any more money by continuing your current mode of record management?
4. If things go wrong, are you comfortable taking responsibility for your record keeping decisions?

The Bullvine Bottom Line

Regardless of whether you’re motivated by a new season and the potential for growth and renewal, or whether spring woke you up and you’re now hell-bent on clearing out the cobwebs that are holding your dairy business back, it’s clear that maintaining proper books and records is vital to dairy success! Spring cleaning may seem somewhat ordinary but, when applied to record-keeping, it will take your dairy to extra-ordinary!

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