By Peter Martin
There are always growth opportunities in agriculture. Typically, these fall into three areas, or what I call “buckets.” There’s no best or right bucket of opportunity, only the one that makes sense for you and your operation. Here’s a closer look at each:
1. Expansion. This traditional growth opportunity seeks increased revenues and profitability by taking on more. For example, you want to add acres or diversify into livestock production. If you’re interested in an expansion opportunity, take these tactical steps:
- Assess your farm’s current core operations for overall health. Gauge strengths and weaknesses to assure you’re financially sound. Do things work smoothly day to day so your business wouldn’t miss a beat if you had to step away to concentrate on an expansion project?
- Plan who and where you want to be in five to 10 years. Explore how an expansion will affect your family or key stakeholders. Then create a one-year and a three-year plan to stay on track to execute your long-term plan.
- Don’t be afraid to reject an expansion prospect if it doesn’t fit your plan. A shiny idea might be tempting, but it can distract you from your real goal.
2. Optimization. If you want to make the most of what you already have, find opportunity in making your existing operation better. Optimization can even mean shrinking your current operation while sustaining your profitability level with fewer hassles. To pursue optimization, be sure to:
- Benchmark your operation against similar ones. If your labor expenses are significantly higher than your neighbor’s, focus on reducing them. Look at ways to challenge yourself. Could you cut other costs? Improve your equipment efficiency? Streamline current efforts? Create customized goals for each benchmark that reflect what you’re aiming for.
- Assess yourself. The demands of farming often mean you have to miss family events or vacations. If you want more time for yourself, challenge yourself and your team to find ways to achieve that. It might take six months before you can finally step away occasionally, but this can optimize your operation and your life. The change can also prepare your successors for a future on the farm.
- Create an action plan—with help. To think through the steps leading to optimization, use a second set of eyes, such as a trusted friend or respected adviser, to evaluate your operation, management style and finances.
3. Transition. Taking steps today to move into your next stage of life marks another opportunity. Maybe you’ve reached retirement age and are ready to turn over your operation to the next generation. But a transition isn’t only age-specific. With today’s depressed commodity prices, many can’t afford to farm anymore. They might need to move on, perhaps taking a job
elsewhere. Whatever the scenario, it’s important to:
- Calculate what you’ll need financially after the transition. Will you have sufficient funds? Will you retain part of the farm to meet loan payments? Will you need to sell the farm? Understand the ramifications so you can proceed.
- Engage advisers once you know your needs and wants. Because transitions have many moving parts—financial-, legal- and tax-wise—it’s critical to have a trusted attorney and accountant on your team to help map out a successful plan.
Figure out which bucket makes the most sense for you. Involve your key stakeholders and be disciplined in your approach. The more laser-focused you are, the more likely your opportunity will succeed.
This column is not a substitute for financial advice.