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Is Your Farm Operation Ready for Growth?

Date: 
Author: 
Bob Foerder
Educational Opportunities: 
Articles
Interests: 
Grain, Dairy, Swine, Beef, Timber, Young, Beginning Farmers
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Are you in a position for farm expansion? Now you may think that’s a crazy question, given the current Ag economy, but the opportunities are still there. In order to determine whether you are in a position to grow your farm operation, you must first understand what additional risk you are able to take on. For those who remained conservative during times of higher prices, they are seeking out those opportunities for growth. But how to determine whether now is the time for you? And to answer that question, there are three areas to focus on in considering your answer.

Do you have the capacity? One of the first questions you should answer when considering farm expansion is whether you have the capacity to do so. If you are in the position to grow, you likely are in that position by doing a great job running your operation. If you choose to grow your operation, you should do so in a way that wouldn’t negatively impact your current performance, or altering the processes in place that has allowed your operation to remain successful over time.

Look at the equipment you currently have. Would your current equipment inventory have the means to service the growth of your farm operation? And if not, do you have the capital available to purchase additional equipment? In addition, one of the largest challenges Ag faces when it comes to capacity is a strong, reliable labor force. Do you have labor in place to handle additional growth, and if not do you have access to good labor? Remember that having to train a new labor force, or onboarding new employees into your operation requires additional resources, including time and money to get them up to speed. Infrastructure is another factor to consider when looking at your capacity to grow. Is your operation equipped to handle any additional overhead? Whether it is your own infrastructure in grain storage capacity, or looking at your access to grain elevators in your area to handle additional inventory.

Financial ability to grow. Experiencing any kind of growth requires reflection on your current farm financials. Does your current financial position support the ability to add additional debt? Taking on risk in a downturn, even with current strong farm financials still requires extra examination and thought. Things that your lender will certainly want to examine include your working capital and equity position, as well as your history of profitability. As an operation who is looking to grow and expand, a lender will want to see evidence of you being able to consistently generate profits throughout these challenging times. Focus on getting better, before getting bigger. Rarely does a business grow its’ way into profitability simply by growing.

Having a strong risk management strategy in place is also important when expanding and taking on additional risk. Things like a solid crop insurance policy and a grain marketing plan are vital to any risk management strategy. During times of downturn when producers may be looking to cut costs, crop insurance should never be viewed as an option, it is a requirement. Work with your financial services provider in your area to help develop these plans. Having them in writing, rather than just floating around in your head will help you stick to the plan, and make decisions more efficiently. Plus, by having these plans well organized and documented will give you the ability to more easily share them with your lender.

Taking advantage of opportunities. Operations can always grow, but the question is, should they? As opportunities present themselves, evaluate whether they are the right one to accept. Whether they will be a benefit to the operation in just the short-term, rather than a long-term business play. This is one of the most difficult decisions that producers struggle with, determining which opportunities to take advantage of. It is just as important to know when to walk away from a bad opportunity, as it is to take advantage of a prosperous one. For example, accepting additional land could be a good opportunity, but don’t overextend yourself by committing to rent that is above what you can reasonably afford, or that may tie you into a long-term lease that prevents you from taking advantage of other options. Non-traditional opportunities are also an option, like finding alternative revenue streams. It is possible for producers to find a niche market to enter into, or create a unique arrangement that provides value to their operation while complimenting their grain enterprise.

In conclusion, even during times of downturn, be on the lookout for opportunities for growth. Evaluate those opportunities, and understand your financial position as best you can by keeping up to date, and accurate financials so that when those opportunities present themselves, you can act more quickly if the fit is right. Understand your current capacity, to know what level of growth you can handle. And of course, always reach out to your trusted partners to help you navigate those changes.
 
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