When expanding a dairy, a few bumps along the road are to be expected. But how do you know when those bumps signal an underlying management problem?

The earliest warning signs that a business is growing faster than your management ability show up on the “soft” side of the business, explains David Kohl, professor emeritus of agriculture and applied economics at Virginia Tech. Issues like communication, employee relations or even family stress get attributed to “growing pains” that will smooth out if given enough time.

Some managers don’t recognize a problem until an episodic event happens, such as a heart attack, or half the labor force walks out. Or, another person points it out.

Granted, other outside factors can lead to some of these issues. But you won’t know for sure unless you conduct a thorough self-evaluation. Sit down with a trusted adviser and look for the following warning signs. They could indicate that your business is growing faster than your management ability.

1. Family problems

A lot of managers think if they can just get through the first six months of an expansion, things will fall back into place at home.

But that doesn’t leave much to chance. If you’re wrong, by the time you realize a problem exists, the business, as well as your family, could already be negatively impacted, says Darrell Dunteman, agricultural business consultant and accountant in Bushnell, Ill. While families always have some strife, the key is to look for a change in the amount or consistency of that strife.

Look for the following signs:

  • You routinely miss family events, such as your children’s sporting events. In the past, you rarely missed one.
  • You rarely eat supper with the family or spend time with them in the evening.
  • Your spouse often complains about your lack of involvement with the family. In the past, this was periodic.
  • You and your spouse are both emotionally stressed-out on a regular basis. 

2. Personal problems

“If you lose management control, it is very difficult to turn the ship around and get it back,” says Mike Salisbury, Salisbury Management Services, Inc., in Twin Falls, Idaho. The changes that occur are slow and subtle, so it can be hard to see. That’s where a brutally honest self-analysis can pay off.

Listed below are some warning signs. Remember, you are looking for a change: Is this different from how you used to be?

  • You spend most of the day putting out fires. In the past, you spent some time each day planning, charting the course for your business, and occasionally addressed emergencies. 
  • You miss or cancel adviser meetings.
  • You lack patience with many, if not all, of your employees. If you find yourself “blowing up” or “losing it” with at least one employee daily, it can signal a problem — especially if this never used to happen.
  • You fail to return phone calls or get back to vendors. While it is normal to have some days where you are just too busy to return phone calls — or even take phone calls -— it shouldn’t be every day, says Dunteman. When you have a consistent lack of time for the small details, things start to slip.
  • You complain about your spouse and family to anyone who will listen.
  • You experience an unexplained weight loss.
  • You are unable to sleep.
  • You are uptight and nervous when you didn’t used to be. Others notice a “deer in the headlights” look on your face.

3. Labor issues

Good managers know that as the operation grows, they must give up some things. But sometimes managers hold the reins too tight, communication breaks down and frustration sets in — for both employees and management.

Some of the early warning signs will appear in your labor force. Look for the following:

  • The bookkeeper quits or is fired. Bookkeepers or accountants can be the first ones to spot financial trouble on the horizon, says Kohl. But management doesn’t want to hear it or believes the bearer of the news is suddenly incompetent.
  • Increased labor turnover. This occurs in both family and non-family labor. And at entry level-positions, it can become a literal revolving door of employees joining the dairy and then quickly leaving.
  • Loss of middle managers. Often, according to Kohl, the scenario runs like this: The first middle manager in an expansion lasts about a year. The second lasts about one to two years. Finally, the general manager realizes that he must relinquish some control and responsibility to a middle manager in order to make things work. In situations where there are no middle managers with tenure beyond three to five years, it signals that the general manager has never learned how to manage, motivate or lead people, Salisbury says.
  • Poor morale. Overall frustration occurs at all levels from a lack of direction and feedback. In addition, employees start trying to stay “under the radar” of the grumpy boss they no longer know how to please.

4. Changing trends

When it comes to monitoring your business, you need to keep an eye on your trend lines and look for trend reversals, says Danny Klinefelter, professor and extension economist at TexasA&MUniversity. Look for the following:

  • Your performance drops within your peer-benchmarking groups. If you have consistently been in the top 10 percent or top 20 percent of the group — in terms of financial parameters — and then suddenly drop out of that category, you need to investigate.
  • Not meeting production goals. If you go from consistently meeting production goals to routinely missing the mark, it often indicates a bigger problem. Decreased milk production or increased somatic cell counts are indications of a trend reversal. True, milk production could be lower if you calved in a lot of heifers for the expansion, but you need to know for sure. 
  • Herd-health problems. Clinical mastitis, lameness, cull rates, or pregnancy rate can be used to monitor trends. Pick a few key parameters and monitor them monthly.
  • Appearance of the dairy. If your dairy has always been well-manicured and tidy, but now seems to have taken on a shabby appearance, you should ask why. 

5. Financials

Many of the traditional financial ratios used to monitor business performance are lagging indicators; that is, they tell you what has happened in the past. Using these indicators, says Kohl, it could take more than a year to signal a problem, and, with a large dairy, you may have already lost $1 million.

Instead, use these warning signs:

  • Frequent cost overruns during expansion. If your cost overruns exceed your contingency budget, or occur in every aspect of the expansion, it signals a problem.
  • Paying bills late and incurring late fees and finance charges. While this probably happens once in awhile to everyone, it should not happen every month.
  • Budgeting accuracy declines. If you have stopped closing out the books each month, or no longer compare the actual budget to the projected budget, you are cheating yourself out of valuable information, says Klinefelter. Anytime your actual spending exceeds budgeted spending by 5 percent or more, you need to determine why, and then either fix the problem to get spending back in line, or adjust your budget accordingly.  
  • Change in net worth on an earned basis declines. Looking at your change in net worth on an earned basis eliminates the change in market value. It also tells you if you are getting additional income from that additional debt.
  • Liquidity crunch. Keep an eye on your working capital as a percent of budgeted expenses. It should always be 20 percent or greater. If you fall below that benchmark, then investigate.

Take the test
When management ability has not kept up with business growth, about 75 percent of the time someone else must point it out to the manager. Use the test shown in this article help determine if your management capacity has kept up with business growth. And, pull it out periodically to continually assess how things are going.

Assess your communication

Research shows that 60 percent of all management problems are, in fact, communication problems.

Therefore, assess whether you have adequate communication in place, advises Danny Klinefelter, professor and extension economist at TexasA & MUniversity. He recommends using an eight-step approach developed by Peter Drucker, the founding father of modern management and author of such landmark books as “The Practice of Management” and “The Effective Executive.”

Ask yourself the following eight questions:

1. Do your employees truly know what they are expected to do?

2. Do employees know why they need to do things a certain way?

3. Do you have a system in place to provide employees feedback on performance?

4. Do you have a system in place that allows people to improve or grow in their jobs?

5. Do your employees know where the business is headed?

6. Do you have a plan to get there and have you shared it with your employees to get buy-in?

7. Do employees know their role in your plan?

8. Have you answered the “what’s in it for me” for your employees?

Any question that you did not answer “yes” to indicates an area where communication could improve.

Use sequential growth

“Experience has shown that only about one in five (farms) can get bigger and better (improve management skills) at the same time,” says David Kohl, professor emeritus of agriculture and applied economics at Virginia Tech.

For the best long-term results, you should grow your business and your management ability in sequential steps. To accomplish this, you would first expand your management capacity — that is, improve your skills or hire a middle manager. Then, expand business volume by increasing cow numbers or increasing milk production. When this type of sequential pattern is followed, you get even better results from business growth.

Don’t get caught with AIA

Producers can find themselves in trouble if they try to expand their operations without updating or improving their management abilities, says Mike Salisbury, Salisbury Management Services, Inc., in Twin Falls, Idaho. These producers often fall victim to AIA:

  • Arrogant attitude. You don’t think it will take any more to manage 3,000 cows than it did with 1,000 cows.
  • Ignorance. You haven’t studied your situation enough to realize you are in an entirely new ballgame.
  • Apathy. So what? It won’t impact me.