A major purchase can be a game changer for farm businesses, however it requires careful planning and strategy to ensure it supports both short term productivity and long term success. We encourage farmers to take time to assess their financial situation, understand the full costs of ownership, explore financing options and seek professional support before taking ‘the leap’ by investing in a major piece of equipment, vehicle or tools.
Understand your financial position
Before committing to a major purchase, it is fundamental to evaluate your farm’s current cash flow and do a financial health check. This will help you understand if your business is able to afford the purchase without affect ting your financial stability.
- Do you have sufficient cash flow to manage the purchase?
- Are you carrying any existing debt that might affect your ability to manage new financial commitments?
Understand the costs of ownership
Large purchases usually involve ongoing costs beyond the initial payment. Potential expenses to ensure that you are factoring in include:
- Maintenance
- Insurance
- Operational
- Potential upgrades
- Annual loss of value of a new machine
For example, a new header may save time and increase efficiency on your farm business, but you’ll need to account for ongoing expenses including fuel, repairs, maintenance and staffing costs.
When considering a major purchase, we suggest clients complete a partial budget. This compares your current costs against the costs of the new purchase.
Consider alternative options
Before making a large purchase, consider other options that might be more cost effective in the short term. For example, instead of buying new equipment outright you might explore borrowing or leasing equipment from neighbours or other farmers.
We also need to recognise there are other considerations besides cost, such as being able to spray or harvest crops when you want to rather than being dependent upon contractors and what impact that might have on your operations.
Financing options
Take the time to compare financing options carefully. Check for government programs that can help with farm, equipment or infrastructure upgrades. Having a well-structured financing plan is a good way to make sure the purchase doesn’t strain your cash flow or limit your ability to manage other priorities.
Plan for risks
Farming is impacted heavily by land conditions, weather and market forces which can be volatile and difficult to predict. Farmers need to make sure that the investment fits into their long-term business plan and can handle unforeseen challenges that could arise.
Seek support
Major purchases are complex decisions, it is important to reach out to your accountant, financial planner or bank manager for advice and assistance. While RFCS NSW does not offer financial advice we can help you assess your finances and evaluate how a major purchase could impact your profitability.
If you are considering a major purchase, engaging with others can provide valuable insights to help you make more informed choices and need assistance in assessing your financial health. RFCS NSW is here to help with free, confidential financial counselling and support. To speak to your local Rural Financial Counsellor and access the services of RFCS NSW call 1800 319 458.
