Editor's note: The following article was written by Miranda Leis who operates Leis Farms LLC with her husband Corey in partnership with Corey's father, milking 320 cows near Cashton, Wis. It was published in the February 2013 issue of Dairy Herd Management.
The process of making a large capital purchase can be a very daunting one, particularly for younger producers. Trying to establish our financial stake in the operation is not easy and takes planning, patience and perseverance.
Our first major capital investment was a difficult decision, and many times a little scary. Our financial role in the operation wasn’t very clear, contributing to our uncertainty. From compensation and all other “paper” aspects, Corey was an employee. However, from a management standpoint he was much more than that. I suspect the same is true for many young people trying to establish themselves in an existing operation.
What this meant was that any purchase had to be covered by Corey’s farm wages. It seems simple enough, but when you are trying to establish a family, purchase family necessities (housing and transportation) and, if possible, save for retirement, it can be quite stressful. We had to very carefully consider the affordability of any major purchase – in addition to the impact it would have on the remaining income available to manage our household. However, to begin establishing his place in the operation, Corey felt the risks were justified.
Now, many discussions involving budgeting for potential purchases take place around our dinner table during early winter months. What pieces of equipment are nearing the end of their useful life and may be up for replacement? What new technologies have emerged which may have a place on our operation? By the time these “proposals” reach our dinner table there has been quite a bit of background work completed. Since capital is certainly a constrained resource, particularly for young producers, we try never to be taken off guard with a major purchase.
New technology purchases tend to be more exciting, but can come with some risk and a relatively high initial investment. In the past we were not always in a financial position to be early adopters and experiment with new technology.
If we find an innovation that we feel has potential use on our operation, we research it heavily to understand the in’s an outs. We often wait to see how the technology performs on farms of trusted peers, often those who have been farming longer and may be in a better position to take the risk. We ask a lot of questions of friends, nutritionist, veterinarians, crop specialists and dealers. Over the years this network has been very valuable, particularly when considering the purchase of new technology.
Regardless of whether the purchase is for new equipment or technology, the most important component is to have a good, solid relationship with your lender. Because Corey is in a partnership with his father, we feel it is particularly important that he maintains an independent relationship with the farm’s preferred lender. We speak regularly with our lender, not only about our current financial status, but also our near- and long-term goals. The more our lender understands our goals and future vision for the operation, the more support and guidance they can offer during the purchase decision process.
Corey has also established a great deal of trust with our vendors, making sure to always hold up his end of the agreement. We like to develop relationships with vendors who have excellent service agreements, and who see the value in working with young producers. There are those who don’t take young producers seriously, and they are best left off your list of potential vendors.
We discuss pricing options and what might make sense for our operation. Without that trust and support, running an operation of any size would become very difficult indeed.