5 Principles to Recession-Proof Your Dairy Farming Business

What are the most forward-thinking dairy producers doing right now to minimize their risks and position themselves for the future?

In Episode #3 of the Uplevel Dairy Podcast, Jay Joy with Bridgeforth LLP, looks ahead into an uncertain 2023 with a handful of principles to recession-proof your dairy farming business.

As an interim chief financial officer and a family business advisor for several large dairies in the High Plains, I knew Jay was the right person to answer this question and to invite on as a monthly guest and founding partner of the Uplevel Dairy Podcast. He’s got the know-how and experience from cutting his teeth as an ag lender and being in the executive seat on some large dairy and livestock operations. But more importantly, Jay combines his strategic and executionary skills to teach, coach and lead farm families as they grow and transition in management, leadership and ownership. That’s easier said than done, but Jay’s not one to back away from a challenge.

Here are Jay’s five principles for recession-proofing a dairy farming business:

1. Don’t always be borrowing your last dollar. Whether your foot is on the gas pedal or break, don’t let yourself get over-leveraged. “I’ve seen good operators and good businesses that bit off more than they could chew and the leverage got them,” he warns.

2. Don’t blow all your working capital. Be prepared to weather the storm. Maintain adequate levels of working capital, always. “You never know when the sun is going to stop shining and when the clouds are going to form,” Jay says. “Always be prepared with enough working capital to leverage the storm and absorb the shocks that the dairy industry can throw at you.”

3. Have your debt structured appropriately. Match the amortization of your debt to the length of the useful life of the assets you are financing. For example, don’t go build a brand new dairy facility and expect to pay for it in five years. On the same principle, if a piece of equipment is a five to seven-year asset, don’t try to pay it off in two years.

4. Ask for the umbrella when the sun is still shining. The best time to ask for money is when you don’t need it. The worst time to ask is when you do need it. Jay advises, either have access to cash or a line of credit so you can operate normally, so you can make decisions based on the economics of what makes the most sense versus what you need to do to satisfy short-term cash flow needs.

5. Have the courage to be willing to shed unprofitable or noncritical assets. “I’ve seen way too many producers hold onto unprofitable parts of their operation, where as if they would have just shaved them off, they would have been able to save the part worth saving,” Jay says. He went on to note the balance between control versus cost. Many farmers like to have control over each aspect of the business, but there are certain things you can hire done cheaper than doing it yourself.

Jay’s expertise is stepping into family farm businesses to act as a fractional CFO and part-time executive, where he takes over short-term management of the books while coaching his clients to make sound decisions that improve profitability and cash flow in their dairy farming and related businesses, with the goal of helping family-owned enterprises move forward and stay family. Contact Jay: jay@bridgeforthllp.com