Busines$ense

Management Training for Dairy CFOs

Bradley J.Hilty
Information Management Specialist
Penn State Dairy Alliance

Busines$ense
What is Busines$ense?

A Dairy Alliance program to train Chief

Financial Officers of dairy businesses in:

Best Management Practices in BM & IM

Standardization of IM Practices
A systematic approach to business analysis
Identifying bottlenecks with benchmarks

Busines$ense
Program Objectives
Enhance participants understanding of BMP in
IM & BM
Implement standards for data management
Provide benchmarks for evaluating business
Provide a systematic approach to evaluate
business
Provide tools for ongoing business evaluation
Improve information for decision making

Busines$ense
How did we do this?

Established a Baseline
Collect data for Dairy Farm Business Analysis

Implement standards for IM

Short term
Long term

Evaluate Cost of Production-DairyCOP$

Evaluated Business Performance-DFBS
Develop Strategies to Address Weaknesses

Busines$ense
How did we do this?

Hands On Experience
Data Collection for DFBS
Systems analysis using benchmarks
Calculating Production Costs with DairyCOP$

Group Discussion
The Key to Busines$ense (10-15 dairies)

Busines$ense
Features of Busines$ense

Lecture Topics
Characteristics of successful businesses
Standardization of IM practices
Benchmarks for measuring business
performance
Managing investments for profitability
Cost control & net margin analysis
Analyzing incremental costs and returns

The Six Steps

of Information
Management

Data
Utilization2
Data Integration1
Data Reporting
Presents data for interpretation
Data Processing
Data entry & calculations

Data Organization
Provides structure to the data set
Data Collection
Observation, measuring & recording of data
Bradley J. Hilty, Information Management Specialist, Penn State Dairy Alliance

Busines$ense
Importance of Sound IM Practices
If you dont measure it,
you cant control it.
GIGO
Provide Accurate Feedback to Others
Benchmarks Comparisons
Standardizing the Process

Busines$ense
Goals of Successful Business Owners

Maximize profits
Maintain adequate cash flow
Build equity
Quality of Life
Family
Employees

Others??

Busines$ense
Goals of Successful Business Owners:
Achieve Balance
Maximize profits
Maintain adequate
cash flow
Build equity

Quality of Life

Busines$ense
Goals of Successful Business Owners:
Achieve Balance Maximize profits

Maintain adequate
cash flow
Build equity

Quality of Life

Busines$ense
Goals of Successful Business Owners:
Achieve Balance

Maximize profits
Maintain adequate
cash flow
Build equity

Quality of Life

Busines$ense
Characteristics of the Successful Businesses

Very Profitable
Generate Abundant Cash Flow
Sound Financial Base
Efficient in the Use of Inputs
Capital Efficient

BUSINESS ANALYSISFive Star Financial Benchmarks

Bradley J. Hilty
Information Management Specialist
Penn State Dairy Alliance Program

Profitability
Return on Assets
(ROA) >10%

Financial Efficiency

Capital Efficiency

Operating Expense Ratio

OER< 75%-Corp
OER<65% -SP/P

Asset Turnover Ratio

ATR >.6 Dairy & Crops

ATR> 1.0 Dairy

Liquidity

Solvency

Term Debt & Lease

Coverage Ratio
(TDLCR) > 1.20

% Equity
% Equity > 60%

Evaluating Herd Performance

with Benchmarks
Production
Milk/Cow/Day

Herd Status

Cow Management

DIM

Cull Rate

Reproduction
Diagnostic
Benchmarks

Pregnancy Rate

Diagnostic
Benchmarks

Udder Health
SCC

Diagnostic
Benchmarks

Bradley J. Hilty
Information Management Specialist
Penn State Dairy Alliance Program

Busines$ense
Benchmarks Evaluating Business Performance
Criteria

Ratio

Average

Leaders

Goal

Profitable

ROA

4-4.5%

15-20%

8-10%

Cash Flow

TDLCR

1.15

2.00

1.25

Financial Base

% Equity

50-55%

50-55%

50-60%

Financial Efficient

OER

72-76%

< 65%

65%

Capital Efficient

ATR

.40-.45

>.65

.65
(>1.00)

Busines$ense
Key Performance Indicators
Key Herd Performance Benchmarks
Milk/Cow/Day Production (>70 lbs)
Cull Rate Total Cow Management (<30%)
Days In Milk Herd Status (170-175 days)
Pregnancy Rate 22-24%
Heat Detection - 60%
Conception Rate 40%

Reproduction

SCC - Milk Quality (< 200,000)

Busines$ense
Hands-On:

Cost of Production System

Busines$ense
Hands-On:

Analyzing
Business
Performance

Busines$ense
Understanding Bottlenecks?
Production Systems Are Pipelines

INPUTS

PRODUCTS

Bradley J. Hilty
Information Management Specialist
Penn State Dairy Alliance Program

Busines$ense
Understanding Bottlenecks?
A restriction in the product pipeline

INPUTS

Fixing the wrong bottleneck

is of no benefit.

PRODUCTS

It is important to detect & correct the

most restrictive bottleneck first.
Bradley J. Hilty
Information Management Specialist
Penn State Dairy Alliance Program

Is the business
profitable?

ROA

Busines$ense

Is the business
financially efficient?

Is the business capital

efficient?

OER

ATR

Examine Key Expenses

Feed

Examine

Labor

Is the production a
problem?

Investment per cow

Others

Milk/Cow/Day

Land Values

Evaluate
Forage Quality;
Cow Comfort;
Ventilation;

Why is production a
problem?
Examine production
record KPIs

Evaluate investment
strategies;
Consider liquidation or
reallocation of assets

Water;
Management SOPs

A systematic approach to analyzing business performance.

Bradley J. Hilty Information Management Specialist; Penn State Dairy Alliance

Busines$ense
Business Analysis Results:

Busines$ense
Distribution of ROA

18
16
14
12
10
8
6
4
2
0
<0

0-5

5-10
ROA Range

10-15

<15

Busines$ense
Indicator

Average

SD

Min

Max

BST

No BST

Herd Size

191

151

37

530

228

112

Cull Rate

27.1

11.7

4.0

47.5

30.2

20.5

Milk/Cow

20405

3821

11280

25621

22622

16286

Acres/Cow

2.85

.94

1.23

4.32

2.85

2.86

Milk Price

$13.49

$0.95

$11.74

$15.19

$13.56

$13.36

Mail Box $

$12.84

$0.83

$11.43

$14.61

$12.85

$12.81

Busines$ense
Indicator

Average

SD

Min

Max

BST

No BST

ROA

1.15 %

5.7 %

-12.20 %

16.4 %

2.15 %

-0.72 %

OER

74.5 %

11.5%

53.0 %

95.0 %

77.5 %

68.9 %

ATR

.55

.18

.33

1.08

.59

.47

% Equity

56.4

23.9

20.0

99.5

51.6

65.4

TDLCR

1.16

.66

.20

3.22

1.08

1.30

Cost $/cwt

$10.12

$2.00

$6.46

$13.75

$10.49

$9.44

Busines$ense
Indicator

Average

SD

Min

Max

BST

No BST

Cows/FTE

34.3

8.5

22.0

49.0

33.3

36.0

Milk/FTE

683419

203344

464802

1058740

752472

555177

Labor $/cwt

$1.27

$0.82

$0.00

$3.14

$1.53

$0.78

Feed/Cwt

$4.04

$1.01

$1.70

$6.04

$4.19

$3.78

Feed+Crop/
Cwt

$5.00

$1.08

$2.62

$6.67

$5.07

$4.85

Feed %-Milk

27.8 %

9.4 %

10.0%

37.0%

30.9 %

22.2 %

Busines$ense

Indicator

Average

SD

Min

Max

BST

No BST

Invst/Cow

$7138

$1773

$3571

$10907

$7500

$6466

Debt/Cow

$3266

$2003

$171

$8705

$3732

$2401

Machine $/Ac

$205

$113

$79.00

$504

$193

$226

Busines$ense
Herd Size vs ROA
15.00%
10.00%

ROA

5.00%
0.00%
-5.00%
-10.00%
-15.00%
0

100

200

300
Cows

400

500

600

Busines$ense
ROA vs Milk/cow
15.00%
10.00%
5.00%
0.00%
-5.00%
-10.00%
-15.00%
10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

Busines$ense
ROA vs ATR
15.00%
10.00%

ROA

5.00%
0.00%
-5.00%
-10.00%
-15.00%
0.3

0.4

0.5

0.6

0.7
ATR

0.8

0.9

1.1

Busines$ense
Machinery Investment/Acre vs ROA
15.00%
10.00%

ROA

5.00%
0.00%
-5.00%
-10.00%
-15.00%
$0

$100

$200

$300
Machine $/Ac

$400

$500

$600

Busines$ense
Busines$ense 2001 Results
Cost of Production Data- DairyCOP$
Milk Production Costs/ CWT
6
5

# Herds

4
3
2
1
0
< $ 12.00 $12-$13 $13-$14 $14-$15 $15-$16 $16-$17 > $17.00
$/Cwt

..\..\Desktop\Managing Production Costs-Complete.doc

Busines$ense
Program Evaluation Results
Indicators
Identified

Financial
Pre

Financial
Post

Production Pre

Production
Post

0/5

77.4 %

0.0 %

13.8 %

2.0% ??

1/5

12.9 %

0.0 %

27.6 %

0.00

2/5

9.7 %

7.1 %

41.4 %

0.00

3/5

0.0 %

21.5 %

13.8 %

0.00

4/5

0.0 %

28.6 %

3.4 %

38.1 %

5/5

0.0 %

42.8 %

0.0 %

59.9 %

Thank You!

?? Questions ??
For a copy of this
presentation email..
bhilty@psu.edu