In our Financing a Farm Dream series, we’ve talked about some of the challenges farms are facing today with regard to money management. It’s an uphill battle to make the farm support the farmer. In our second post, we discussed the comparison trap and the many reasons to avoid it. There is just no sense in trying to replicate another farmer’s farm to the finite detail.
Today, I want to share a golden rule in our business. It’s our rule about selling assets and what to do with the proceeds.
There are seasons in life and business where you will find yourself in a pickle. Perhaps the credit card came in and it was a surprise… really it shouldn’t be but I’ll just be nice and leave it there… Or maybe you haven’t been too keen on keeping expenses low and now there’s just not enough money for the month.
I’ll bet the first thing you go for is the assets. Those big masses of livestock eating forage out in the field. “Well, I’ll just sell a few. Get caught up and do better next time.” Said that before?
It is really common practice to start liquidating assets to keep debt at bay or to make up for spending overages, in general. But, I am here to tell you, that’s not a good practice. Happens once. Ok. But, don’t make it a habit.
Our golden rule of assets is this:
Proceeds from sale of assets should only be used to buy more or invest in new assets.
Brooks and I are no different. We live and breath the same air as you. We, too, throughout our years of being in business had not adopted this as a general rule. We sold some of our breeder cows to make the budget work. Now that we have some experience behind us, we work hard to sustain assets and not consume them.
What this means for a cattle business in practical terms is: we have two types of cattle on our farm – breeding stock (cows) and heifers/bulls used for harvest. The breeding stock (cows) are those animals that are used to produce what we sell. They are an income producing asset. The heifers and bulls are our product. So, when it’s time to replace one of our cows, we sell her or process her. The money made from the sale/processing will go directly back into something that produces an income.
Asset to asset.
It will not go towards paying the bills. Asset to expense.
It’s a reinvestment of funds.
In non-farming terms, it would be like you taking your hard earned savings account and moving it to a CD. Or investing in a new start up. Or buying a piece of real estate. Instead of using your savings to buy a new tv. Or a new car. Or groceries. Or paying off the credit card. Etc. Etc.
Remember, asset to asset.
This is the rule we are abiding by as we analyze our current herd size, land resources, projections for the years ahead, and the unending projects at the Cumberland farm. This is one way our money works hard for us instead of the other way around.
This requires a mindset change. It’s all about how you view certain components to farming and business. We all should know by now how difficult it is to make money farming. So, we have to be extremely intentional with how we utilize our funds.
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