They have been asking the following:
- How long will or can this market environment continue?
- How long can my operation withstand these market conditions?
- What can I do to adjust my operations to the new market conditions?
- What is the value of my operation today?
- What will the value of my operation be next year?
- What does it look like if I try to exit the industry?
- What will be left for the next generation when the time comes?
In years that milk prices and commodity costs allow operators to turn reasonable profits, it is easy to continue managing our operations as we have successfully done for years. That’s not so enjoyable when the markets change and operations struggle.
The previous list of questions are important but are often only asked when markets are less favorable or our current business model is not working.
During times of turbulence, we often look for sources of stability to help us “weather the storm.” Many times we do not consider the need for stability until after the storm has arrived. The result of this generally leaves us unprepared and scrambling for options.
What if we looked to other industries for examples of how they have prepared to weather the storm? One example of this concept could be a lighthouse used in the shipping industry. Sailors use these points of reference to navigate when seas are rocky, visibility is low and shorelines are dangerous. What “lighthouses” do dairy operators have to assist them in difficult conditions, and have the lighthouses been built so we can use them as navigational references during our stormy times?
To begin to better understand this, and start the process of identifying what lighthouses we need to build, we will need to start with asking ourselves the following questions:
- What items in our operations indicate things are good and we are headed for smooth sailing?
o How are we measuring or monitoring these items?
o What are the warning signs we should be looking for?
o What will we do when the warning signs become visible?
- How do we plan to make our operations “future ready” as markets change?
o What efficiency improvements are we planning/working on?
o What are we doing to manage the risk of the operations?
o What outside assistance/education/advisers will be required to manage operations?
- What do we want to be doing in five years? 10 years? 20 years?
o How will new generations enter the operation and management?
o How do we plan to assist older generations exiting our operation?
o What is the plan to maintain the operation for multiple future generations?
Knowing the answers to these questions will help provide some of the points of reference needed to assist with short-term and long-term decision-making and to weather the storm of changing markets. The answers to these questions let us define our operation as well as the planned direction of the operations.
We can also start to build those lighthouses that will help us, and our operations, avoid just riding out a future storm. We will be able to steer our operations out of turbulent storms. While we might not always come out of the storm as cleanly as we would like, we will at least be able to maintain control of our operations (ship) until the storm has passed.
With all that said, what do we do now that we are in a storm and just praying we survive it? The answer is to start now. The identification of even one lighthouse and working on building it right now just might save the operation from future pitfalls. The best place to start varies with each operation, so going through the process will result in a different answer for each operation. Maybe your operation has the ability to do one of the following:
- Start a small custom heifer-raising operation.
- Start a beef cattle feeding operation.
- Shift from high production to high component production.
- Downsize and lease a facility out.
- Upsize and lease an additional facility.
The list above may have nothing to do with your operations, and might make absolutely no sense, but you won’t know until you begin the process of identifying what lighthouses you can build to help your unique operation. The prior suggestions are just a few ideas to get you thinking of the numerous ways you may be able to diversify, restructure or change up your current business model to make it more robust.
Spend some time with your management team and discuss what can be done in your operation to improve it. If you do not have a management team, now is the time to put one together. A management team can be comprised of both internal owners and managers, and external professional service providers such as your attorney, accountant, banker, financial adviser and anyone else who contributes significant information and influence into how you manage your operation. 
ILLUSTRATION: Illustration by Kristen Phillips.
Lance Fenton is also a CPA and certified valuation analyst with Cooper Norman.
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Mark Brady
- CPA
- Certified Valuation Analyst
- Cooper Norman
- Email Mark Brady
