An Employee-Owned Company
Economic
Benchmarks for
Dairies: Eight Rules
You Cannot Break
An Employee-Owned Company
Gary Sipiorski
An Employee-Owned Company
“You Can’t Break the
Rules”
• 2:1 Liquidity
• 20% of Milk check to pay P&I
• 85% Expense Rate
• ...
An Employee-Owned Company
Liquidity
Current Assets
• Cash
• Savings
• Receivables ($ owed you)
• Feed
• Market Steers/Hogs...
An Employee-Owned Company
Other Considerations
• Payables at 18% Interest
• Think About Fixing Interest Rates
An Employee-Owned Company
No More Than 20% of
the Income for I&P
Payments
• 15% is better
• $250,000 $37,500/$50,000
• $1M...
An Employee-Owned Company
No More Than an 85%
Expense Rate
• Expenses/Gross Income
• Less is Better
• $1,000,000 Income X ...
An Employee-Owned Company
$ Debt/Cow
• $3,000 - $5,000
• $7,000 Max Special Terms
• Debt/CWT # of Milk $20/CWT
• Less is B...
An Employee-Owned Company
At Least 30% Equity
• Net Worth/Total Assets
• $200k/$500k = 40%
• More is Better
An Employee-Owned Company
3 Year Asset Turnover
• Total Assets/Total Income
• $1M Farm/$350k Income = 2.8 years
• US Farm ...
An Employee-Owned Company
8% Return on Equity
(ROE)
• Net Income/Total Assets
• $80,000 Net/$1M Assets = .08 or 8%
• Highe...
An Employee-Owned Company
Know Your Cost of
Production!
• All Expenses / CWT Milk Sold
• $400,000/23,000cwt = $17.39
• $16...
An Employee-Owned Company
Can I Bend a Few
Rules?
An Employee-Owned Company
“You Can’t Break the
Rules”
• 2:1 Liquidity
• 20% of Milk check to pay P&I
• 85% Expense Rate
• ...
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Economic Benchmarks for Dairies: Eight Rules You Cannot Break

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Gary Sipiorski presented this information for DAIReXNET on October 7, 2013. The full version is available at http://www.extension.org/pages/15830/archived-dairy-cattle-webinars.

Published in: Education, Business, Technology
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Economic Benchmarks for Dairies: Eight Rules You Cannot Break

  1. 1. An Employee-Owned Company Economic Benchmarks for Dairies: Eight Rules You Cannot Break
  2. 2. An Employee-Owned Company Gary Sipiorski
  3. 3. An Employee-Owned Company “You Can’t Break the Rules” • 2:1 Liquidity • 20% of Milk check to pay P&I • 85% Expense Rate • $3K-$5K Debt/Cow • +30% Equity • 3 Year Asset Turnover Rate • 8% ROA (Profit) • Know Your COP
  4. 4. An Employee-Owned Company Liquidity Current Assets • Cash • Savings • Receivables ($ owed you) • Feed • Market Steers/Hogs • $2.00 Current Liabilities • Payables over 30 days • Past due rents • Past due RE taxes • Principal due in next 12 months • $1.00
  5. 5. An Employee-Owned Company Other Considerations • Payables at 18% Interest • Think About Fixing Interest Rates
  6. 6. An Employee-Owned Company No More Than 20% of the Income for I&P Payments • 15% is better • $250,000 $37,500/$50,000 • $1M $150,000/$200,000 • $2.5M $375,000/$500,000
  7. 7. An Employee-Owned Company No More Than an 85% Expense Rate • Expenses/Gross Income • Less is Better • $1,000,000 Income X 85% = $850,000 • 65% - 85%.........
  8. 8. An Employee-Owned Company $ Debt/Cow • $3,000 - $5,000 • $7,000 Max Special Terms • Debt/CWT # of Milk $20/CWT • Less is Better • Is Borrowing money Bad? • $1 Invested $1 Gross Income Each Yr
  9. 9. An Employee-Owned Company At Least 30% Equity • Net Worth/Total Assets • $200k/$500k = 40% • More is Better
  10. 10. An Employee-Owned Company 3 Year Asset Turnover • Total Assets/Total Income • $1M Farm/$350k Income = 2.8 years • US Farm Average 4 years • Low number Better 1.5 years • How about high price land? • What value should I put on land?
  11. 11. An Employee-Owned Company 8% Return on Equity (ROE) • Net Income/Total Assets • $80,000 Net/$1M Assets = .08 or 8% • Higher Number is Better 15%.... • Earned Income not “Appreciated” • After Family Living, Taxes, Other Expenses
  12. 12. An Employee-Owned Company Know Your Cost of Production! • All Expenses / CWT Milk Sold • $400,000/23,000cwt = $17.39 • $16.50 - $21.00… Range • 90% From Milk, Enterprise • Cash COP = Expenses, Principal, FL • Accrual COP = Expenses, Depreciation, FL
  13. 13. An Employee-Owned Company Can I Bend a Few Rules?
  14. 14. An Employee-Owned Company “You Can’t Break the Rules” • 2:1 Liquidity • 20% of Milk check to pay P&I • 85% Expense Rate • $3K-$5K Debt/Cow • +30% Equity • 3 Year Asset Turnover Rate • 8% ROA (Profit) • Know Your COP
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