In times of tight margins, every purchase must have a purpose with ROI top of mind. As you optimize your equipment, crop inputs, farmland and business intellect for the year ahead, take the time to plan your work, and then you work your plan.
I will spend hundreds of millions of dollars in my lifetime — and I’m just an average-sized Illinois farm with a growing seed conditioning business. How do we use those dollars effectively and strategically? We purchase with a purpose.
There are three areas I’d like to focus on: land, physical assets and personal value.
What Are Your Land Goals?
Has land historically come in bits and pieces through connections, opportunities and unforeseen circumstances? For most farms, the answer is yes. I encourage progressive farms to look 50 years down the road. For instance, what does that look like if you currently own 500 acres of land and want to own 1,000 acres when you’re 80?
At today’s prices in Northern Illinois, you would need $6.5M ($13,000 per acre). On a 30-year note, 10% down, at 5% interest, that note will cost you $11.3M ($22,600 per acre).
That’s if you buy today. What do land costs look like in 25 years? I sure don’t know, but likely not lower. Land is too expensive and important not to have a plan in place.
Some key questions you should ask yourself are:
- Does where I buy the land matter? Does it need to be next door or can it be farther?
- Do I take on the debt now or later? What am I doing now to ensure I can cash flow that balance later?
- What specific type of land am I looking for? Size of parcel, quality, shared use, etc.
These questions and many more are things you should have in your mind and on paper to purchase with purpose. Grant Wiese is an ag lender in Nebraska who puts out a free weekly newsletter on farm640.com, that I highly recommend you check out, and he just published a farm buying toolbox you’ll want to see.
What Will Have a Legacy?
Let’s talk about physical assets next. Would you rather purchase a tractor or a watch?
I’m not here to help you convince your spouse that a cellar of quality whiskey or wine is a purchase with purpose (good luck there), but it does warrant a look at other physical assets that will bring value to your business.
I recently purchased a dilapidated gas station on the main street of our small town. I have invested a lot of money into it because it is a high-traffic route and provides great visibility for signage, advertising, a name for our business and our personal reputation for improving our community. This purchase was done with purpose and a long-term vision. On paper, it’s a 1945 cinder block, two-stall garage with an office space and two bathrooms with recent renovations. In reality, it is much more. Its purpose is to fulfill a 20-year vision for our business and community involvement.
We also recently purchased a vacant warehouse space for our seed business in a nearby small community. I aspire to grow into the space with our seed business growth, which is happening faster than I anticipated. It’s a delicate balance not to get the cart ahead of the horse, but we are manifesting our goals through deliberate action by deciding what we will purchase, cash flow and improve, and what has value to our business long-term.
What physical assets will have a legacy impact on your family and farming operation? Grain bins, livestock buildings, processing facilities, multiuse buildings, additional income streams and maybe some antique tractors are all possibilities for most farm businesses to consider. Remember, though, physical assets only have value on the balance sheet and are not the equivalent of cash unless you are willing to sell them. Purchase wisely.
What Do You Value?
Finally, let’s look at what purposeful purchases have the most personal value. I’ll start hot with a topic most farms neglect: a home gym. We buy $10,000 of inputs without batting an eye, but most would balk at the possibility of spending that on weights and a few machines. Are we scared to spend the money, or are we scared of the commitment and dedication it takes to invest in ourselves?
Next in the chute is vacation and time with family. It can be a weekend at the nearest water park, camping in the state forest or staying home and shutting off the work emails and phone calls to just spend time with your family and work on house projects before harvest starts.
One of these days, we’re all going to wake up dead, and what the hell has all of the business work been for if we didn’t enjoy time with our family, watch our kids grow up and do things we enjoy? My wife and I recently purchased a plot of land at a nearby lake community that gives us access to the beaches, playgrounds and fun in the sun.
I don’t care to ever own a boat or build a lake house, but the $1,000 a year for a lifetime of memories for my girls as they grow up is an easy check to write.
Last is the investment into our retirement strategy and planning, something you will hear more about from me this year. How much investment does it take now to live the life you want to live when your mind or body decides farming is no longer something you want or need to do? More than $5,000 a year is required.
If you’re over 45 and haven’t gotten serious about investing or retirement, you should start seriously crunching some numbers and decide if trading the combine is the best bet or if you should start furiously socking away money and investing. When it comes to living a purpose-driven life, purchasing or investing in your future will be crucial.
How will you purchase with purpose for the remainder of 2024 and into 2025? I hope you will consider my points and also feel free to reach out if you want to talk about your land, physical assets or personal purchases from an outsider’s perspective.
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