Today, I want to look into growth opportunities for your farm through purchasing more country versus increasing the productivity of your current farm. As you know, the price of land has gone up significantly in recent times. Dollar per cow area or dollar per average yield of grain has become more expensive in terms of value, yet many of the farmers we’ve been talking to have been thinking about growth and expansion.
We recently had a meeting with our clients who were looking for growth opportunities for their operation. One of their options was to purchase a property further afield.
While purchasing country one to three hours down the road may seem feasible, there are pros and cons to consider before making your decision. Things like:
While buying the property next door can be a better option for growth, you want to esnure you buy it at reasonable value. This might seem like a no-brainer but again, we looked into this with a couple of our clients and in one instance, the property was going for a considerable sum. With the good seasons we’ve had coming out of the drought, it can be tempting to take on four or five times the debt in the name of expansion, however, you need to ensure you can service your loan during the tough time too, otherwise it could prove to be a real challenge, particularly if we return to more dry seasons.
The consideration here should be things like your ability to service the loan. Perhaps this decision to purchase more land is able to be done from a security perspective, but it should be researched thoroughly before deciding. Serviceability is paramount, with year-in-year-out cash flows prepared that stress-test projected cashflows. If it’s growth you’re looking for, you might want to consider your time-frames too. If you go heavily into debt, it might be a while before you see a return on your investment, so it’s important that you consider this as well.
The one solution to expansion that’s often overlooked is increasing the productivity of the farm you’ve got, rather than going into debt to buy the place next door or looking further afield.
Looking at your current property and identifying what can be done to make it more productive is a worthwhile exercise and should be done before purchasing more land anyhow. Asking yourself and your team questions like the below can all help to increase your property’s productivity and help you both in the long and short-term.
Finding your quick wins and picking the low hanging fruit is the quickest way to gain momentum for further growth. While it’s easy to get caught up in the idea of expansion, you could be missing out on the golden opportunities awaiting you in your own backyard.
Looking at your current property with fresh eyes can be an invaluable exercise. One of the key aspects of our Farm Business Success Program is finding the opportunities most available to you and taking advantage of them at the right time.
To find out where you might be missing key opportunities for growth on your farm, try our Farm Business Success Scorecard.
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