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Elevate Your Understanding of the True Cost of Machinery Ownership and Operation.

Dec 11, 2017, 12:37 PM

Just like major corporations, producers face challenges during a tough economic cycle—and cash flow is one of biggest hurdles. Managing the inflow and outflow of cash is tough even in the most profitable operations. At 21st Century Equipment, we’re sympathetic to this challenge and are here to help in any way possible.

Over the next few articles, I want to help you fully understand your cash flow. That requires having a good handle on your costs and expenses, which helps you arrive at solid “breakeven” numbers.

There are four major cash expenditures in a farming operation, and every direct farm expense can fall under one of these categories: 1) Machinery Costs; 2) Operating Costs; 3) Inputs; and 4) Land Costs.

We’ll start with machinery costs by asking this question: What is your true machine cost—and what is the true cost to operate your machine?

Machine cost is the annual ownership cost: total payment (principal/interest or lease payments) divided by the number of hours or acres the machine is used. This is a simple calculation of the per hour or per acre basis for that machine.

Operating cost is the total repairs, fuel, lubrication and labor cost associated with running that machine on an annual basis, divided by the number of hours or acres of use.

Per hour cost is important in understanding machine efficiency. Per acre cost is important later when assessing your cash flow on a bushel per acre basis. You need to know both.

When you’re considering a machine upgrade, make sure you are comparing apples to apples. By knowing the machine costs and operating costs, you can look at all of your machines and determine which are the costliest to run and which are most efficient. This helps you make some well-informed management decisions—such as upgrading your machine and switching from a loan to a lease, for example. (This can significantly drop your annual machine cost while increasing your efficiency through lower operating costs.)

So here’s today’s challenge: Take the time to figure your annual machine cost on both a per-hour and per-acre basis. Calculate your costs for fuel, lubrication and labor. Estimate the repair dollars required to keep it in the field. Once you get those numbers, pencil in your land costs per acre for both rent and your principle and interest payments. Keep those handy as you’ll need them next time when we discuss operating costs and inputs.

Farm equipment is not just machinery; it’s your livelihood. It’s the difference between getting by and getting ahead. Is the machinery you have right for your operation? Are you optimizing the labor savings, technology and efficiency your machinery provides? Do you feel “stuck” in a loan on equipment that isn’t doing its job on your farm?

If you have these types of questions, we’re here to help you get answers. It is our job and our passion to get producers into equipment that best fits their operations and their budgets. And we have plenty of tools and options to help you get there.

Let us help you elevate your understanding of your true costs and your true cash flow. Knowing this information can help you make the most of your investment in equipment and innovation—and that can lead to bottom line profitability.

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