Expanding Your Business

Posted December 27th, 2009 — Filed in Bud's Musings

The dairy farmers are having problems just like a lot of people are now. At a meeting with the Justice Department’s antitrust division the issue was whether or not the largest players in the dairy industry were to blame.

It is always bad when businesses have problems but now, instead of realizing what actually caused the problem, there is the desire to blame someone else. Later in the article this is what they wrote.  “Dairy farmers nationwide are coping with historically low milk prices after a 36 percent drop in the past year to the lowest level in three decades. In 2007 and part of 2008, dairy farmers enjoyed high milk prices as a booming global economy boosted demand for milk around the world. Dairy farmers expanded their herds to cash in. Then, with the onset of the recession, demand for milk weakened and dairy farmers were left with an oversupply of milk, which depressed prices.”

Why do people think they have to expand to cash in on a higher price?  If the industry expands there will be over production at some point. Why not just sell the milk that you have, make a nice profit while the prices are high and save some money for the drop in price that is coming?

Most of this expansion,  was probably done with borrowed money, that makes the problem even worse. The thing that makes these problems so bad is that “someone else” must always be to blame. Nobody wants to take responsibility for their actions.  It is in their mind that something else caused the problem.

If you want to have a profitable business it is you that makes it profitable, or that makes it unprofitable, not some other things.

What can we learn from this?  When prices are going up is not always a good time to expand.  When prices are going up is a good time to save money.  

When should we expand?  When prices are low and we are profitable.  When we have saved enough income from the profitable business to pay for the expansion without borrowing money to do it.  Let the business that makes a profit when prices are down, pay for the expansion, then a drop in prices will not hurt.

“Someone else” does not make you go into business or make you expand the business, that is your choice.  A business should pay for any debt that was incurred to start the business and provide any money needed to expand.  If not, should you really expand?