THE ONE KEY DIFFERENCE BETWEEN A GOOD INVESTMENT AND A WASTE OF MONEY
There is a lot of difference between a great investment in machinery or infrastructure and a bad investment. We can get quite technical and look at measures such as return on investment, labour hours saved and total cost of ownership (the lifetime maintenance and operational costs as well as the asset cost).
Today I want to quickly talk about one measure. It’s pretty simple. It’s useage. Basically anything you use becomes good value, anything under utilised is not.
When buying new machinery the possible hours used (or head of stock throughput or hectares covered) is a major driver of the relative worth of the investment. But what about re-examining things you might currently have on hand?
Around all farms there are many items that have been replaced, have been superseded by new technology or are just a smaller version of what is currently in use. Now is a good time to take a bit of a cut to some of these items. Second hand machinery prices are red hot and online sales methods make buying and selling much easier than in the past. Rationalising a bit of gear has many benefits including reducing maintenance costs, reducing insurance costs and increasing shed space.
More recently purchased properties may have infrastructure that falls into the same category. The big one here is often livestock infrastructure on cropping properties or duplication of infrastructure on farms that are side by side. I have also seen people on selling transportable homes when a realistic (not romantic) assessment of the needs of the farm business and the farm family for accommodation is undertaken.
The principle holds true for the “toys” also. Caravans, ski boats, jet skis, camper trailers etc are great fun. If they are regularly used you are getting a return on your investment. If they sit in the shed and generate feelings of regret and get touched up by the mice, perhaps it’s time to move them on. Nothing wrong with buying back in when your life stage or circumstances change.
This time of year it might be worth a chat to your accountant about possible timing of sales as there may be some tax implications. Remember though, our primary reason for business is profit maximisation not tax minimisation.