(This was written in response to an inquiry from an 18 year old potential dairyman. He wanted to start right away, with a partner, using grants and loans.)
I want to encourage you, but I also want to be realistic with you. Everyone wants grants; very few get them. Hey, grants are free money and that’s something you don’t see often. Don’t ever count on getting them. And almost every one has lots of strings attached. It helps to have had previous experience in applying for grants. Loans are much more viable. But those have to be paid back.
However, 18 is very young to get a loan from a bank. They will ask to see examples and proof of your management ability and you haven’t have time to get that yet. It takes some years. To an 18 year old, they might be more apt to make a small loan for some calves, which you could raise up to sell or to start your own herd. That would be a baby step for both you and the bank, but the start of a relationship which can grow.
Generally to finance a dairy, banks want a good comprehensive business plan, and a combination of enough education and experience (including management) to prove you know what you are doing and know how to deal with problems when they present themselves. And they want you to have some "skin in the game” - money of your own that you have invested, money that you have earned by the sweat of your brow. Like 30% or more of the total needed. Like enough to keep your debt per cow level under $3000. If your money comes from someone else, parents perhaps, they will probably want some more down. If you have to pay back money loaned from parents (or whoever), you may not be able to get the bank loan as they want a buyer to have significant equity in the operation and borrowed money, bank or personal, is not equity. Also, plan on having money in reserve, for startup costs until the milk checks start to arrive, and for unplanned emergencies. They will occur regularly.
Now, partnerships. On paper, it is an absolutely great way to get started. You combine your resources, your knowledge, your labor. United we stand, divided we fall. And that’s also the problem: you have to get along, to have similar goals and similar ways to achieve them. You have to be able to specialize and let the partner have the major say on some part of the operation. You have to be both equally hard-working. When you get married or have girlfriends or boyfriends, they have to get along too. When you are young, you are probably still changing and there’s no guarantee your partner will change in the same direction. That’s a major reason why there is a so much higher failure rate in very young marriages. If you still want to do the partnership, know your partner very, very well beforehand. And put everything in writing between you that you can think of. Who does what? Who brings in what resources? Who pays for what? How do you dissolve it if you later want to? It will pay to involve professional assistance with this.
Be aware that most partnerships fail. Most new business fail too. The first one or two years will be the easiest in some ways as your enthusiasm will carry you a long way. The second year is when the cracks start to appear, when your cushion is used up and things still keep breaking, when you start to get short with each other. Think of this: will your relationship survive the partnership? Many friendships have been lost that way. But a partnership that overcomes the difficulties and is ultimately successful can be a beautiful thing.
I want to encourage you, but I also want to be realistic with you. Everyone wants grants; very few get them. Hey, grants are free money and that’s something you don’t see often. Don’t ever count on getting them. And almost every one has lots of strings attached. It helps to have had previous experience in applying for grants. Loans are much more viable. But those have to be paid back.
However, 18 is very young to get a loan from a bank. They will ask to see examples and proof of your management ability and you haven’t have time to get that yet. It takes some years. To an 18 year old, they might be more apt to make a small loan for some calves, which you could raise up to sell or to start your own herd. That would be a baby step for both you and the bank, but the start of a relationship which can grow.
Generally to finance a dairy, banks want a good comprehensive business plan, and a combination of enough education and experience (including management) to prove you know what you are doing and know how to deal with problems when they present themselves. And they want you to have some "skin in the game” - money of your own that you have invested, money that you have earned by the sweat of your brow. Like 30% or more of the total needed. Like enough to keep your debt per cow level under $3000. If your money comes from someone else, parents perhaps, they will probably want some more down. If you have to pay back money loaned from parents (or whoever), you may not be able to get the bank loan as they want a buyer to have significant equity in the operation and borrowed money, bank or personal, is not equity. Also, plan on having money in reserve, for startup costs until the milk checks start to arrive, and for unplanned emergencies. They will occur regularly.
Now, partnerships. On paper, it is an absolutely great way to get started. You combine your resources, your knowledge, your labor. United we stand, divided we fall. And that’s also the problem: you have to get along, to have similar goals and similar ways to achieve them. You have to be able to specialize and let the partner have the major say on some part of the operation. You have to be both equally hard-working. When you get married or have girlfriends or boyfriends, they have to get along too. When you are young, you are probably still changing and there’s no guarantee your partner will change in the same direction. That’s a major reason why there is a so much higher failure rate in very young marriages. If you still want to do the partnership, know your partner very, very well beforehand. And put everything in writing between you that you can think of. Who does what? Who brings in what resources? Who pays for what? How do you dissolve it if you later want to? It will pay to involve professional assistance with this.
Be aware that most partnerships fail. Most new business fail too. The first one or two years will be the easiest in some ways as your enthusiasm will carry you a long way. The second year is when the cracks start to appear, when your cushion is used up and things still keep breaking, when you start to get short with each other. Think of this: will your relationship survive the partnership? Many friendships have been lost that way. But a partnership that overcomes the difficulties and is ultimately successful can be a beautiful thing.
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