As the overall ag economy continues to experience tough times, it’s smart to position your farm business for opportunities that may arise – whether a piece of land, equipment or other business opportunities.
This situation might sound farfetched, but it may already be happening: What if a landlord comes to you tomorrow, offering 1,000 acres for you to rent? You’d probably have a flood of questions in your mind, such as:
- Is it financially feasible for us to rent the ground? Or would that put us in a bad position?
- What level of rent would make sense for us? At what point would it not make sense anymore?
- Would additional acres increase our efficiency? Or would we need to purchase additional equipment to handle more ground?
- Are we in a position where we can grow right now?
These are just a few of the questions you’d want to answer before making a decision. But if the right financial data isn’t available, it could take a while to get that information together – and time may be short when an opportunity comes up.
You can prepare now by getting the right knowledge and information about your operation in place. Take the time to understand your operation’s current financial situation. Then, you can move more swiftly if an opportunity arises.
Some farms have determined, through financial analysis of their operation, that they can leverage some of their equity. Some are keeping more cash on hand so that when opportunities arise, they can immediately take advantage rather than having to jump through additional bank requirements. But first you need to know where your operation stands, from a financial perspective.
Here are a couple actions you can take, working with someone knowledgeable in this area such as an ag finance specialist, to prepare an accrual-based financial projection to help you take advantage of opportunities:
Know your costs. Make sure you have a complete understanding of where your operation stands, financially. What are your breakevens? What would create financial risk for your operation?
Analyze your debt structure. Many banks have started to put greater restrictions on what they’re willing to do when it comes to refinancing loans. If you haven’t analyzed your farm’s debt structure yet, now is the time. You might have your debt structure analyzed by someone who specializes in ag finance.
Get a framework to evaluate opportunities. Have a process in place that you can use to evaluate new purchases or opportunities. Your process should reflect your farm’s overall business plan and priorities so opportunities can be evaluated in light of your overall plan.
If you’d like more business and management ideas for today’s farm leader, read the latest Smart Series publication to find articles on land rent negotiations, farm transitions and more, or visit us at www.waterstreet.org.
The opinions of the author are not necessarily those of Farm Futures or Penton Agriculture.