We recently had an opportunity to expand our acres, but our financial situation isn’t all that strong right now. What can we consider as we weigh out any future opportunities? — D.B., Illinois
First of all, congratulations on being approached with an opportunity like that — growing in acres can often be a good way to increase the farm’s efficiency. There’s certainly a lot that I don’t know about your operation or about this particular opportunity, but I’ll share some broad questions and areas to examine.
When you’re always on top of your farm’s current financials and numbers, it becomes quite a bit easier to know whether or not you can take on a new risk. A major way our advisers work with our clients’ financials is being ready to run financial scenarios and feasibility studies on opportunities like these. That way, you can see how the decision will impact your operation.
Next, ask yourself: Have I earned the right to grow my operation? By that, I mean: Are you committed to running your business — using solid practices, systems, controls and business thinking — in such a way that you’ve earned the right to grow?
It’s easy to just go out, rent ground and increase the size of a farm operation. What’s more challenging is to build a business that earns the right to do so in a profitable way.
It can be tempting to believe that if the farm just had more acres, it would be more profitable. But that’s rolling the dice and simply hoping that good things happen, rather than first getting the right systems and processes in place for success.
Be sure to also determine whether you have enough equity in your operation. In taking on a new opportunity, the farm should be careful not to turn over too much ownership to lenders — that basically puts them in control of your destiny.
Most importantly, does the particular opportunity align with the long-term goals you have for your operation? That’s key to help keep the focus on what you really want for your farm — and its future.
Frye is president and CEO of Water Street Solutions. [email protected]
The opinions of the author are not necessarily those of Farm Futures or Penton Agriculture.
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