SW Financial Literacy
It is difficult to begin generating income to grow your farming operation. One poor decision can take years to overcome financially, especially when you don’t have much to start with. Here are 5 ways to quickly put yourself behind the 8 ball that you should avoid early on:
No family budget
Farming can be lucrative and there is easy access to cash. One good year can make you want to reward yourself and your family. A trip to Disney, beach vacation, two new vehicles, side by side, and boat are all justified. Suddenly you have $20,000 in credit card debt and $1,500 a month in vehicle payments. This is just the beginning of lifestyle creep. Hold off on these things for as long as you can.
Overpaying for your first farm
It can feel impossible to find ground. You also know land doesn’t get cheaper. The problem is, if your first large purchase cannot generate any cash flow, your operation will feel very tight for a long time. This can be suffocating. Try finding a less desirable property or farm that requires sweat equity. You can use that first purchase as a springboard to something better in the future.
Buying equipment
Often there is pressure felt to contribute to the generation before you. There are many ways you can help but buying the next $200,000 planter or $300,000 tractor when you have a $150,000 equity is unwise. If you must, start smaller and find ways to use the equipment to generate additional income through custom work.
No rental acres
Owning ground creates wealth through equity. Rental ground can provide you the cash to grow. The fastest growth I have seen from producers farming less than five years comes from those who pick up 400 to 800 acres to rent. Know your numbers and don’t overpay, but don’t be afraid of the challenge or unwilling to work.
No off-farm income
Some of the wealthiest farmers and most stable operations went to trade school and work for a living. A $100,000 wage and 400 acres is all it takes. Or maybe you prefer a part time job that provides health insurance. Or you could run a manure business putting your owned tractor to better use during the offseason. Or run cattle over stocks during the winter. Find a way to generate more income.
If you don’t do these 5 things, you will most likely add rocket fuel to the growth and profitability of your farm.
Have a great day!
Grant