Owning every tractor and implement used to farm may have been the conventional approach to managing your equipment lineup in years past. However, in today’s market that approach is likely not the most economical and could have lasting impacts on your bottom line. As the cost of equipment, parts, labor, and repairs steadily increase, leasing or custom hiring work could be a more viable, cost-efficient alternative to ownership. All strategies have pros and cons – and which one works best for you depends on a few key variables.

Comparing Costs

In today’s market, farmers are looking for places to cut costs where available. While it may have once been economical to have two planters and two tractors running simultaneously during planting season, that may not be the case anymore for many producers. It is wise to evaluate whether the high cost of operating multiple pieces of equipment is worth the production value for your farm.

Performing a cost comparison is typically the first thing farmers calculate when determining whether to buy, lease, or custom hire. However, that comparison needs to account for more than just the sticker price and how much capital is required to get a certain piece of equipment. Hidden costs may not be apparent at first glance. Cash flow and trade-in value variables often play an important part in the consideration. These factors should all be accounted for when determining whether buying, leasing, or custom hiring is right for your farm’s financial health.

Additional Capital and Infrastructure

There’s a ripple effect: some equipment is dependent on other equipment, which may also require additional labor that must be factored into the equation. The owner of a manure tanker or dragline system, for example, cannot overlook the additional equipment required to set-up and support the manure application system. Can your existing tractor efficiently operate the manure application equipment? Are additional pumps or motors required? Likewise, if you are a dairy farmer, do you have the time and labor needed to get the job done and still manage the rest of your day-to-day farm duties? Additional capital and infrastructure are needed to handle your farm’s manure, which is why many dairy producers may choose to custom hire a manure handling service.

Custom work has been on the rise in recent years because of rising costs of owning certain pieces of equipment. It’s important to determine how much use a piece of machinery will get within your farm’s daily operations. Equipment you use every day or more time-critical machinery may be better to own versus custom-hiring. Having more control over that asset through customization is another reason purchasing may be the better option. GreenStone offers financing for both new and used equipment if purchasing is the best option for your operation.

Cash Flow Considerations

When looking for options to help keep your fixed costs flexible, leasing certain pieces of equipment may be the best solution for your farm. Leasing can help free up cash flow and allow your operation to more easily adapt to changing equipment needs. Instead of putting a down payment on an equipment loan, leasing can help your operation maintain more liquid resources.

GreenStone offers lease-to-own solutions for farm equipment and machinery through our partners at Farm Credit Leasing. With no down payment required, our leasing solutions help you control cash flow, reduce maintenance costs, and improve your balance sheet all while working towards owning the equipment.

Leasing can also provide significant tax advantages as lease payments are generally 100% tax deductible as operating expenses. However, it is still important to fully analyze if this benefit is the right choice for you. Working with GreenStone’s dedicated team of tax and accounting specialists can help you determine the best cost-savings strategy for your operation.

Determine the Right Solution for Your Unique Needs

When deciding whether to buy, lease or utilize custom hiring, it’s important to closely examine your machinery needs and costs associated with each before determining the right move is for your farm. Analyzing your unique operation and your equipment strategy will help you achieve the highest return on investment. If you have questions on what the right solution is for your farm, our team of lending experts are here to help.

Contact your local branch today to learn more!

 

This article was originally published in Michigan Farm News.