Farmers who are working to create a successful, professional farming operation are always aware that to keep the operation in top shape, they have to invest in their business from time to time. That helps the farm maintain its competitiveness and can also boost efficiency levels.

The type of investment I’m thinking about here are the “big” capital projects and purchases. They aren’t the types of purchases that are routinely made each year, although that varies from operation to operation.

This could be anything from equipment upgrades to building bins to adding a new building, and the list goes on. It might be a project you’ve been thinking about for years, wondering when it will be the right time to pull the trigger – or maybe it’s something you just realized last week that could potentially make a big difference.

Long-term thinking

When it comes to major capital projects, planning is key. Farmers who create and use long-term capital improvement plans for their operation tend to find more success because major expenses are planned and budgeted for ahead of time. Often, a five or ten-year capital plan works best for many operations and is always tailored to the unique needs and goals of the farm.

Before a particular project is ever added to the capital plan, it needs to be carefully vetted. The farm’s leaders also should consider where each project needs to stand in the order of different capital priorities.

Projects and purchases should also be realistic – it’s true that there’s any number of new upgrades the operation could undertake. It’s important to recognize what’s truly necessary versus what’s on the “wish list”.

As with any business decision, there will be many trade-offs involved in selecting one project for priority over another – and only the farm’s leadership can decide that after considering the full picture of the current operation and where it’s headed in the future.

The three questions

Here are three questions to ask about any potential capital project that’s under serious consideration for your long-term capital improvement plan.

A long-term capital improvement plan can be a helpful guidance point for the farm. Farmers also often say working with a market advisor on plans and goals can bring a lot of peace of mind. Get in touch with our team of market advisors or get a free two-week trial of our marketing information service at www.waterstreetconsulting.com.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.