Kohl's notes
When is the right time to expand a farm operation?
There are specific criteria that should
fuel an objective judgment about when
you’re ready to grow.
First, does expansion meet your business,
family and personal goals? Recently I met
a farmer who was opposed to expansion
due to the risk of additional debt, while
younger members of his family were
chomping at the bit to break ground on
new facilities. In this case, not all partners
had the same vision for the business.
This needs to be negotiated before any
plans begin. Goal setting and visioning
are prerequisites to expansion.
If you are expanding into new facilities,
buildings or equipment, consider the life
of the asset. With today’s rapidly changing
technology and competitive environment,
a long payback loan structure can lead
to competitive pressure if technology
becomes obsolete.
When expanding, follow the strategy
of “better is better” before embarking
upon a “bigger is better” strategy. Many
producers attempt to grow themselves
out of problems and into prosperity.
In the end, they often bury themselves
in a bigger economic hole.
What is your capital strategy? Many only
examine the initial capital investment
with one number in mind. Frequently,
cost overruns and working capital
needs in the transition period are not
considered, which results in financial
and economic stress due to unexpected
increases in overhead costs.
Consider the ripple effect. It’s not all
about numbers. In our dairy processing
business, we had an opportunity to
expand and double the number of stores
in which our products are available.
Economically it works great on paper,
but what about the impact on employees’,
families’, owners’ and stakeholders’ lives?
Balancing business and lifestyle issues
is critical in the expansion analysis.
Any time can be a great time to expand,
if one follows objective thinking and
focuses on execution.
|
