When you plan to invest in your business you always consider how quickly it will pay back.  If it takes four years to recoup your money it is a 25% return, two years is 50%etc.  Why do I mention such high returns in relation to farming?

Unfortunately a lot of investment decisions and timings are driven by taxation savings considerations. As commodity prices increase again and farming returns to profitability, so the tax bills increase.

We encourage farmers to know within 1-2 months of their year ends where their profits for the full tax year will be so that they can speak to their accountant if they are likely to have a large tax liability.  Unfortunately the accountant has less options than if a plan was made earlier in the year. Buying machinery at the end of the year solves the tax problem but will it give you the 50% return you could get by reseeding a grass field earlier in the year, or investing in staff training or improving soil fertility levels or draining/fencing underutilised land.  All these investments take time. Individually they will be smaller amounts, but collectively could cost as much as a tractor replacement but will give you more return on your investment quicker and still attract the same tax relief as the tractor.

The reason the tractor purchase is a great stop gap for tax when purchased is that it is instant and finance is easy to acquire.  Unfortunately when commodity prices drop and you are still paying for the tractor it can become a liability because it isn’t generating the higher returns of some of the former investments.  Tractors need to be replaced and they can be good for staff morale and working conditions but you tend to get sold a tractor and you buy the land/soil improvement and the staff training.  I wonder WHY?

What is controlling your investment decision making process?  It starts with a budget at the beginning of the year.  How much can or do you need to invest and where in your business this year?

Scarce money needs to be spent wisely.  Giving yourself time to plan the right investments is key to this.  Do you have a plan?  If not, contact Gerard at gerardfinnan@fcgagric.com or your local FCG office to help you invest more wisely in your business.