Agricultural operations require a significant investment in equipment to operate effectively. As a farmer, it's essential to understand the key considerations to evaluate when making a decision to lease or buy farm equipment.
Before your next equipment purchase, take time to walk through these four metrics to help make sure your business is in an optimal position to take on this decision.
Setting goals to measure profitability is a vital step in understanding equipment ownership. A consistent metric such as cost per acre or cost per hour can help measure the effectiveness of the operation. This provides clarity in measuring equipment expenses as they relate to production and profits.
When considering equipment ownership, compare the cost of ownership to leasing or custom hiring by thinking about:
Variable Costs: Leasing or custom hiring can serve as a lower cost alternative, but variable operating costs such as labor, repairs and parts must also be factored into the decision.
Equipment Life: Normal depreciation schedules for equipment are between five to seven years.
Ownership Costs: Account for costs such as depreciation, interest on investment, taxes, insurance and storage of the equipment.
Equipment Production/Utilization: Analyze how often the equipment will be used and how it contributes to production. A piece of equipment that is rarely used may not be cost-effective to own and maintain.
When purchasing equipment, consider the cash investment required; investing money in equipment means it's not available for other purchases to potentially grow the farm. Weigh the costs and benefits of equipment ownership against the costs of alternative investments in your operation.
It's important to review the above exercises annually and in the event of any new capital purchases. This helps to ensure that your ag operation is up to date with the latest equipment ownership metrics and trends, empowering you to make informed decisions that will help benefit the operation’s bottom line in the long run.
Finding the right equipment is crucial to moving your operation forward, but buying equipment outright can be prohibitively expensive for many farmers. A farm equipment loan from FBN Finance could be the financing solution you need to make your ideal equipment purchase a reality and improve productivity in the field.
Whether you’re looking to buy new equipment, update existing equipment, or replace outdated equipment, a farm equipment loan can help spread out the cost over several years, making it easier to manage farm cash flow.
If an equipment loan sounds like the right fit for your ag operation, complete the form at the bottom of this page, click here to start your application, complete the brief form below, or call 866-619-3080 to speak to a member of our team today.
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