As I indicated in last month's column, transition planning is needed if any member of the team feels uncomfortable with how they're being treated with respect to their family, their time, money, equipment, facilities or property.
Whenever there is more than one person involved in a farming business there are differences that need to be discussed. This is natural. You may have heard the saying, “If two people agreed all the time, one is not needed.”
A question that is often effective in beginning discussions is, “In what areas of production agriculture do you see the most opportunity in the next 10 years?” Some revealing issues arise as team members write their answers to this question.
Prioritize the opportunities.
Someone may feel there's more opportunity in crop production while others may see more opportunity in expanding into hogs, cattle or dairy. Within a crop operation there may be good investments in different crop rotations or in specialty crops.
In most farming operations those involved are doing what they like, and have segregated duties and functions. For example, one person may run the livestock operation and one the crop side. That builds competition that can cause friction.
Issues arise because there may be expansion opportunities in each part of the farming operation, but unless you have won the lottery, all of us have limited resources. Therefore, you need to set priorities.
Consider strategic issues on a periodic basis — at least once a year. But I'd encourage you to hold quarterly team meetings.
Many times farm family teams meet on a regular basis, but only day-to-day or week-to-week operational issues are discussed. It's easy to fall into this rut as day-to-day operational issues, like booking propane, aren't as threatening as issues like building more deep pit hog finishers or buying 12-row harvesting equipment.
One decision can lead to another.
Decisions, like the example above of buying a 12-row corn head, may involve other capital investment decisions even if you don't need a bigger combine. Buying a 12-row corn head may also require buying more semis and grain drying and handling equipment.
In one case, this $65,000 investment lead to more than $250,000 in capital investments to maximize the $65,000 investment.
The process doesn't need to be complicated, but with good communication and planning it can add value to each phase of the operation. Plus it allows everyone to have input and feel like they're part of the operation, even though they may not manage that particular segment.
Large operations that can afford a chief financial officer (CFO) can objectively analyze different investment options. Most farm operations don't have that luxury. Some hire consultants that serve as CFOs, which works well.
However, there are analysis tools available that make investment decisions less emotional and are available to anyone. Your land grant university has many easy-to-use spreadsheets available on its Web site that don't cost anything other than your time. Farmdoc, a site maintained by the University of Illinois, www.farmdoc.uiuc.edu, is one such resource.
We use a net present value (NPV) analysis tool that we developed to help determine the value of a future decision in today's dollars based on a calculated weighted average cost of capital.
Find what works for you. But use the same tools, if possible, in evaluating different investment options because each tool may use different assumptions. This will give you some hard data. For example, the tools should provide the NPV of each expansion decision.
The next step is determining if you can afford the investment and, more importantly, whether or not it fits into and compliments other parts of your operation and its long-term goals.
Moe Russell is president of Russell Consulting Group, Panora, IA. Russell provides risk management advice to clients in 20 states. For more risk management tips, check his Web site (www.russellconsultinggroup.net) or call toll-free 877-333-6135.