‘
At the very basic level to make a meaningful contribution to profitability of say £5K to £10K a year the diversified business will need to be gathering sales in excess of £70K a year
6p a litre better off before any consideration of fixed costs. With margins over forage and purchased feeds being 21.2p/litre for the top 25% and 15.1p/litre for the bottom 25%. That difference has doubled by the time fixed costs are dealt with. Having carried out the initial analysis of business performance a careful review is needed of what opportunities there are to improve performance.
A realistic view is needed about the chances of success in that area. Historically it has been radically difficult to turn around below average performing businesses without significant restructuring or reinvestment. Management also needs to be willing to take on new concepts and processes.
It may also be the case that constraints on the location, layout and age of the dairy buildings mean that it is not practically feasible to improve financial performance significantly. Equally the cost of compliance with ever more stringent environmental requirements may also provide a catalyst for change to be considered. At a very basic level to make a meaningful contribution to profitability of say £5K to £10K a year the diversified business will need to be generating sales in excess of £70K a year. Such sales could be generated from the production of another 250,000 litres of milk. To achieve sales from the diversified activity of that level and if the source of income is retail sales, such as from a typical farm shop, then the latter is likely to require significantly more investment to achieve the same improvement in profitability than the former.
In conclusion and returning to the topic of “how to get diversification right” some key elements for consideration include: • Make sure you understand the detail of the financial performance of your core business and question whether you can carry out that activity better. • If you are considering diversification be very clear on the potential impacts to the core business, its profitability and its requirement for funding and investment in future.
32 THE JOURNAL OCTOBER 2014
ABOVE Before contemplating diversifying your business, make sure you understand the financial performance of your core business and question whether you can do better with that first.
’
• When diversifying into another enterprise is being considered make sure that it is properly planned, researched and evaluated financially and that the working capital demands are adequately quantified. • Be clear that you have adequately appraised the enterprise requirements in its widest sense. In addition to product lines and availability ensure the suitability of the site both in terms of access, meeting planning and environmental health requirements. • Be prepared for much tighter turnover and production cycles. It is particularly relevant in relation to management of stocks of products. • Identify very clearly the key personnel that will be required and ensure that they have the adequate skills. Consider investment and profiling both your existing and new staff to ensure they have the skills to deal with the public. This is very different from managing cattle. • Invest in an appropriate level of professional help that will at the very least challenge assumption and ensure that adequate business planning takes place.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136