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One key to operating a successful and competitive dairy business is to monitor business performance and make the necessary adjustments to correct any bottlenecks that may adversely affect profitability. Benchmarks can be useful tools in helping dairy producers evaluate their business. Producers should always have a “Big Picture” view of how their business is performing. Dairy producers can accomplish this by knowing ten key performance indicators for their businesses; five financial ratios and five herd performance indicators. These indicators are comparable to the warning lights on the dashboard of a car. They can signal that something is wrong, but will provide little detail as to what the specific cause of the problems might be. However, if any of these ten indicators are significantly different, from a negative perspective, than recommendations outlined in this manual or the goals established by the business owners, other indicators should be examined to determine the cause of substandard performance.

Conducting an annual business performance analysis is an essential process for all business owners. Although dairy producers are no exception, many fail to address this important matter. An annual business analysis provides the owner with a comprehensive view of how the business has performed in a number of key areas over the past year. The analysis will answer some important questions every business owner must answer and can help determine the strengths and weaknesses of the business. If properly conducted, an annual business performance can pinpoint the bottlenecks that are reducing profits.

Many producers avoid this task because they lack the records needed to complete the process. Others have adequate records but are overwhelmed with the data their records contain. They lack a systematic approach to organizing and analyzing the information they have. The purpose of this workbook is to help dairy producers organize the key pieces of information needed to conduct an annual analysis and provide them with a systematic approach for examining and analyzing that information.

Contents
1 Introduction
1 A Systematic Approach to Integrated Business Analysis
Five Key Financial Benchmarks

6 Key Indicator of Profitability - Return on Assets
8 Key Indicator of Cash Flow - Term Debt & Lease Coverage Ratio
10 Key Indicator of Solvency - Percent Equity
12 Key Indicator of Financial Efficiency – Operating Expense Ratio
14 Key Indicator of Capital Efficiency – Asset Turnover Ratio Five

Key Production Benchmarks

16 Key Indicator of Production Performance – Milk per Cow per Day
17 Key indicator of Reproductive Status – Days in Milk
17 Key Indicator of Reproductive Performance – Pregnancy Rate
17 Key indicator of Udder Health – Somatic Cell Count
18 Key Indicator of Total Cow Management – Cull Rate
20 Benchmarks for Analyzing Key Management Areas of the Business
20 Feed
22 Labor
22 Investment
22 Debt
23 Cost of Production
25 A Systematic Approach to Integrated Business Analysis Putting It All Together

27 Notes and Calculations
28 Systematic Business Analysis Template
30 Key Performance Measures for Pennsylvania and New York Dairy Herds

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PDF Ebook Analyzing Your Dairy Business: A Systematic Approach to Using Benchmarks