“Nothing in life is free; you always pay in the end.” That old quote rings true, even when what is said to be “free” is the influx of funds into dairy farmers’ bank accounts, courtesy of the federal government’s Paycheck Protection Program (PPP), part of the Coronavirus Aid, Relief and Economic Security (CARES) Act.
As a dairy management consultant, I see firsthand how some dairies are using these funds to get ahead while others who received the same amount of money continue to struggle. What are the most profitable dairies doing with this unexpected windfall?
Here are five wise ways the most profitable dairies are putting that “free” money to work:
- Take it to the bank. The most profitable dairies are sitting down with their banker right now and restructuring loans. They are whittling down interest rates and paying down debts.
- Clean up accounts payable. Now is the time to go pay off debts to vendors, too. It is not the time to purchase new and unnecessary equipment that will be sitting in the yard when the feed mill comes to collect on their bill.
- Attend to management issues. Regardless of the extra cash flow, the most profitable operations continue to evaluate, set goals and put action plans in place. Give each area of the dairy an assessment. Evaluate not only cost of production but also feed quality, milk production and the repro program. Take the time now to position each management area to operate at maximum efficiency and profitability so when the next downturn comes, you are ready.
- Prepay. Pay ahead for the inputs and services that are fixed items in your budget.
- Scrutinize expenses and drive down costs. An increase in cash flow doesn’t mean it’s time to put your calculator down. Continue to dig into specific financials for each area of the business and look for opportunities to cut costs.
The most common challenge
Without a handle on the finances, it’s difficult to make wise choices with money, let alone put the “free” money toward a productive purpose. One of the most common challenges I see on dairies is: The owners may excel at day-to-day management of the operation, yet struggle to get a handle on their financial picture. Perhaps they are experts at putting up high-quality forages, or they are the best cow managers around. But when it comes to sitting down and doing the numbers, they struggle. The business management piece gets pushed aside.
If that’s you, I want you to know this: You don’t have to be a numbers wiz to understand your dairy’s finances. You just need to know you can ask for help.
You see, the dairies that are managed well, most profitable and have long-term viability may not necessarily be those owned by those who, by nature, are experts in finance; they simply have the ability to put their pride aside and face what’s uncomfortable head-on, with the help of someone who is an expert to guide them.
This just may be one of the wisest decisions for your dairy business you can make, regardless of how much “free” money the government pays out.
