1. Chapter 2: Strategy Development © 2005 Thomson Delmar Learning. All rights reserved.

2. Key Chapter Concepts: Understanding dairy subsystems Evaluating options Determining factors Formulating a plan Business plan development Business plan contents

3. Understanding Dairy Subsystems Biological Cow’s needs Cow’s ability to produce Economic Manager controls inputs/outputs Social Family/hired labor work together Technical Machines/tools optimize production

4. Evaluating Options Family Goals determine options Technology Milking machines and parlors Housing options Barn cleaners Bulk tanks Enterprises Specialization opens opportunities

5. Determining Factors Lifestyle Choices Herd size Facility type Family goals Commodities Generic products Organic products Geography Operations model Land availability Labor availability

6. Formulating a Plan Long-Term Goals Needed for focus Needed to define smaller pieces of plan Short-Term Goals Feasible strategies Reasonable alternatives Identifying Strategies Identify resources Develop financial plan Work with others to discard poor strategies

7. Business Plan Development — Defining Goals Typical Goals Financial security Profitability Good quality of life Easy transfer to next generation Children treated fairly Minimize taxes Limit probate

8. Business Plan Development — Formalizing Plan Before Visiting a Professional Evaluate operation Define goals Select a strategy Professional Assistance Lawyers Accountants Business development professionals

9. Business Plan Contents Description of current operation Implementation plan Business structure plan Retirement plan Succession and estate transfer plan Buy-sell agreements

10. Business Plan Contents — Business Structure Plans Defining Structure Control Ownership transfer Liability Tax implications Simplicity Valuation discounts

11. Business Plan Contents — Business Structure Alternatives Sole Proprietorship One owner — full control/responsibility General Partnership Two or more owners — full control Each partner liable for debts Limited Partnership General partner — full control/liability Limited partner — less control/liability Limited partner cannot manage business

12. Business Plan Contents — Business Structure Alternatives Limited Liability Company (LLC) Members, not partners No personal liability for debts Articles filed with Secretary of State Taxed as partnership or corporation Cooperative Corporations Members, not shareholders Board of Directors and Officers Members have limited liability 1 vote/member

13. Business Plan Contents — Business Structure Alternatives S Corporations Members, not shareholders Board of Directors and Officers Members have limited liability Votes weighed by % ownership Taxed once C Corporations Members, not shareholders Board of Directors and Officers Members have limited liability Votes weighed by % ownership Taxed twice

14. Business Plan Contents — Business Structure Alternatives Hybrid Combined corporations Structures differ for what is owned Minimizes taxes