Making an investment in buildings and equipment is an important decision for your farm or business.  With the endless options for implements and building add-ons it can be hard to figure out where you should spend your money.  For additional infrastructure to be a good business decision, you should determine how that expense fits your broader business goals, if it is the right time to make that big purchase, and, ultimately, determine if the investment adds to your bottom line.

Below are some questions KCARD staffers typically start with when figuring out if additional infrastructure is a good fit:

1. Evaluate your goals for the business - How does this investment support your goals? Why are you considering this item? For example, does it allow you to grow your production, become more efficient, or produce a new or better product?

2. Evaluate the timing of the investment and effect on cash flow - Do current conditions make the investment feasible?  Is the business in a good position to take on additional debt or not? Can the business pay for it out of existing cash flow? If so, what is the effect on cash flow? Will you still be able to meet your other expenses if you purchase this new asset? How do the answers to these questions change if we have a bad 2020 either due to weather or prices? 

3. When will you recoup your costs? You will need to find out the payback period, net present value, and internal rate of return if possible (KCARD can help!) to help you determine if the investment adds to your bottom line in an acceptable time period. If it makes sense at this stage, it’s probably a good investment. But take time to "turn over all the rocks" to make sure you're not missing anything that could bias your decision-making process. 

For assistance in determining if a purchase is worth your while or matches the goals of your business, or to just have a sounding board for your thinking on these issues, KCARD has services to help you.

First published in April 2016.