What to do when you can’t compete

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The Dairy Excel 15 Measures of Dairy Farm Competitiveness bulletin was published by Ohio State University Extension to provide dairy farmers the ability to evaluate business competitiveness using financial and production information.

Measure Fifteen, The Fork in the Road for Dairy Farms, is discussed in this article and will provide suggestions for those managers who decide to exit the dairy business.

In my previous column, which ran April 15, I discussed what dairy managers need to do to become competitive. These include preparing a mission statement, having written long-term goals, sharing and revising goals, prioritizing goals, identifying short-term goals, conducting a SWOT analysis and financial planning.

What if, after reviewing the things listed above, you determine it is not feasible for you to become competitive? What should you do?

Can’t compete

Some farms cannot be competitive because managerial expertise is low, managers do not have the interest or ability to improve, the farm has few financial resources and/or the operation is labor-intensive.

If the farm is not and cannot be profitable, the family should exit the dairy business before they compromise the equity they have built in the business. Other producers in this situation may desire to continue dairying but will have to support the family from non-dairy enterprises.

Won’t compete

Some dairy managers have no plans for making the operation competitive, and in fact, can afford to be noncompetitive.

Many of these managers are in their 50s and 60s and carry little debt. The dairy operation may provide livable wages given the circumstances. Moreover, the manager does not have children, other relatives or employees with a desire to take over the operation.

Costs of being noncompetitive may be low as long as the manager is satisfied with the income generated by the operation. Managers in this position should plan on setting funds aside for their retirement.

Most other managers cannot afford to remain noncompetitive when means exist for making the operation more competitive. Younger farmers and struggling farmers who do not become more competitive eventually will find themselves in the previous group.

Want to compete but can’t

Sometimes, exiting is the best decision for the business and family. It is a difficult one that should, if possible, be done according to a plan. Consider the following factors if you decide to exit the dairy business.

Evaluate your financial situation: Who do you owe? How much is owed to each? What is the total debt?

Life after a sale: Will you need to seek reemployment, begin a different enterprise or retire? Dairy farmers often do not recognize the many marketable skills they have developed are valued by other employers.

Sale: Will you conduct a private sale or use a realtor or auctioneer? What assets will you sell? When will assets be sold? How much money do you expect the sale to generate? Net of costs of sale? How does expected revenue compare to present debt obligations? What debt obligations must be paid first?

Legal and tax issues: Consult your attorney to discuss any legal concerns related to a sale. There will be tax obligations because of a sale. Meet with your tax advisor to discuss tax obligations and management before sale of assets begins.

Open communication and discussion with family, the management team, employees, and vendors throughout this process is critical. Deciding to exit the dairy business is not easy, but spending time developing a plan to execute your exit strategy can be time well spent. I encourage you to talk with your extension educator, accountant, attorney and other trusted advisors when developing your plan.

The Dairy Excel 15 Measure’s of Dairy Farm Competitiveness can be accessed at: dairy.osu.edu/sites/dairy/files/imce/2019%2015%20Measures%20of%20Dairy%20Farm%20Competitiveness%20Final%20%281%29.pdf

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