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Top 3 equipment buying tips

1. Group buying
Buying in groups, also known as alliances of joint ventures, continues to gain popularity as a business concept in farming. Klinefelter says, “It’s where several farmers in same area have gone together to purchase a bigger piece of equipment, more land or new technologies.”
Group buying can also be used to purchase intangible things, such as specialized management packages. As Klinefelter continues, “Together we can afford to hire a higher skill set than what we could hire individually, and by buying or selling things together we can gain economies of scale.”

Separate operating LLCs within the same business can make purchases, allowing the owner to access liability protection, tax savings, or capital. Managerial accounting is also cleaner when an operating LLC is formed, and dividing liabilities from assets helps users to determine which activities are profitable.

“If I own land, I want to show a land cost that is equal to, not under, its rental value” Klinefelter explains. “The same is true for equipment. If I own equipment, I want to see a cost that is less than what I would pay to rent it. The numbers will tell you whether you are spending too much on certain inputs.”

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2. Peer advisory groups
Another strategy that can be applied to make smart business purchases is peer advisory groups. Typically consisting of 8-12 non-competing, successful farmers, peer advisory groups allow those individuals to share their expertise. “It’s like creating your own board,” Klinefelter states. “But it isn’t as formal. There is no fiduciary liability. And instead of having a governing authority, you appoint a facilitator to direct the discussion.”

In particular, technology advisory groups are gaining popularity as a means to help farmers learn about new technologies. Members meet to discuss the technologies they have purchased or are considering in the future. “As farms get bigger and more sophisticated, no one is an expert on everything,” Klinefelter continues. “If one person learns about a technology and then passes on that knowledge to the group, you accelerate the learning curve.”

Group members are individually chosen based on their interests, abilities, and shared trust. The value provided in these groups comes from hearing various viewpoints. Klinefelter asks, “Am I the only one having this problem? Or is there a different way I could approach it?”

3. Process management
Process management is the third concept that can applied when considering farming purchases. Each process or product is evaluated according to its potential for streamlining an operation, increasing production, improving quality, or saving time. It is the same strategy used in industrial engineering, though it is usually known as Six Sigma, total quality management, balanced score-carding, or lean manufacturing.

Process management starts with “process mapping,” or describing what a business does and which responsibilities are assigned to each person. Once a process is determined, business owners look for means of improving efficiency. That process can also help determine when it would be wise to implement a new technology or product.

Klinefelter asserts that process management not a one-off strategy. As circumstances change and new technologies enter the market and have the potential to improve quality and efficiency, procedures must be updated regularly. “Otherwise, the system can become like a labor union or government bureaucracy, where you become bound by your standard operating procedures.”

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