Mind Your Farm Business — Ep. 79: Planning for business growth

(Kara Oosterhuis/RealAgriculture)

You can’t grow the farm out of a problem.

If growth of the farm is in the plan — whether driven by outside influences or an internal dream, such as bringing more people in to the farm structure — it pays to take a hard look inward and backward first, before forging ahead.

Michael Langemeier is an associate director for the Center for Commercial Agriculture and a professor in the department of agricultural economics at Purdue University. He says that growth can accomplish many things, but growth itself won’t make an uncompetitive farm suddenly profitable.

Once a farm has done the proper look at the current financials and management strength, deciding what kind of growth to pursue requires some thought. In this episode of Mind Your Farm Business, Langemeier says that farms can explore growth from a size perspective or from a scope perspective. Put another way, should you grow the farm size, or change and add what the farm sells?

Often, when farmers hear the word “diversification” they think of something as extreme as adding livestock to a grain operation, or a livestock operation buying a processors, but Langemeier says that diversification doesn’t need to be extreme to add value.

“Maybe I’m a corn producer today, but it looks like it might have this might have this chance to maybe grow, maybe grow popcorn, or maybe grow waxy corn, or maybe grow like corn and soy. And so that’s more of a scope, you know, growth in terms of scope. And that’s, that’s pretty important in today’s world to think about that because in some cases, you don’t need to necessarily add acres, you just need to think about different markets. For the for the for the crops you’re already already producing,” he says. (Story continues below)

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The financial implications are an obvious consideration when assessing a growth plan, but Langemeier says it’s equally important to assess how the change might push management’s ability or time commitment. If you’re not adding to the team, but are adding to the workload, how will that impact other enterprises or the core business?

“Sometimes we think well, we’ll just work harder. Well, unfortunately, farming is very seasonal. And can you actually work harder during planting time? Or during harvest time? Are you already fully extended?” he says. If the answer is that you can’t, and you need staff,  that carries with it a whole new set of management skills required.

Even within established farms, beginning a new enterprise can carry some of the same challenges of any startup, including tight cash flow for the first while. Planning ahead for that eventuality is a far better position to be in than having to reverse a decision once the ball is rolling, he adds.

“If you’re going to add a family member, for example, you’re probably going to grow relatively rapidly. It’s important to come up with a plan, and really think through the situation before you just grow for the sake of growth,” Langemeier says.