A diversified business has both pros and cons. While it can add financial cushion in tough years, it can also be a farm’s downfall, if not properly researched. Carefully weigh your options and consider both best- and worst-case scenarios before investing.
“Examine and document the risks and benefits of the project,” says Moe Russell, president of Russell Consulting group. “The dangers to watch for in diversifying are: Don’t get into a business you don’t know much about, unless you can learn in a very steep learning curve, and be willing and able to hire talent and experience you don’t have.”
- Do your homework. Consider the potential return on investment and the downside risk if the project doesn’t go as planned.
- Talk to others. Identify neighbors or others who have taken this kind of risk—learn from their experience. You could go in with a leg-up or know to avoid an opportunity altogether.
- Have an exit strategy. Not every opportunity will work out, and you should know how to get out quickly if things turn south. Depending on the business, this could include outsourcing labor to run the project, alternate uses for inputs or liquidation.