Back in the early days of the Internet, I was a consultant working with Fortune 500 companies. One of my clients was a national retail corporation with hundreds of stores across the United States. At the end of a meeting with one of the executives I mentioned that we should have a discussion regarding the Internet and the plans their company had to leverage this new (at the time) technology. The conversation went something like this:
Me: “Let’s meet again and have a conversation about how the Internet could be of value to your growth.”
Executive: “Not that interested in the Internet. We have our five-year plan together that shows where and when we will be opening new locations. It’s time to execute, not reshuffle the deck.”
Me: “It appears to me that a five-year plan should include the potential of the Internet as another way to connect with your customers.”
Executive: “Look…I know the Internet provides you consultants with engagement potential, but we have looked at the numbers and the Internet just doesn’t make sense to us, financially.”
Me: “What numbers did you look at?”
Executive: “We looked at what it takes to build one of our new locations and the expected revenue planned for that location. We then did some quick math on how many small piece shipments we would need to make through the Internet to equal just one store’s volume. The math just didn’t work out because of the change in distribution and handling processes required to order, invoice, receive payment and deliver goods one at a time via Internet. We know how to build a store and we know our financial returns. The Internet math just doesn’t work.”
After some time, I moved on to other business challenges and this company was purchased by another retail corporation. They eventually had an Internet presence, but the time to make a brand difference via the Internet had past them by.
There are numerous stories about how the ‘today’ perspective blurred future decisions for other companies, but it is also true for farm owners.
If the retail executive had a chance for a ‘do-over’, would the company use the ‘math’ from their current set of numbers, or would they look at the opportunity from a different perspective? If you are a farmer or own a farm, do you look at the operation’s math from a ‘today’s perspective’ or taking a look at new ways to view your ownership?
A critical mistake that any business leader can make, is to think that the business elements that exist today, will be here forever. Having a ‘today’s perspective only’ can lead to missed opportunities and sometimes to a disastrous set of decisions. Grain prices, land prices, weather, Ag export volumes, to name a few, will all change over time. Nothing stays the same. A future view perspective needs to identify potential changes and adjust accordingly.
Future View Perspective
As you read this article, you may be thinking of selling your farm or ranch. You may be thinking of buying a farm or ranch. The question becomes…are you using the right math? Every farm or ranch land sale needs to include the effect of capital gains taxes in your calculation. Or does it?
What if the future view perspective on your farmland sale allowed you to defer that capital gains tax into the future for 20 or even up to 30 years? Now what type of future decisions could you make? How does the extra ‘in pocket’ monies from your sale change your perspective of the future? What opportunities could you invest if you had this extra source of revenue?
The Math Changes
Monetizing the Installment Sale (Section 453 of the US Tax Code) for farmers and ranchers changes the math of your sale. It can shift your view of the future and create a new perspective. While no one knows the future, wouldn’t it be great to have the math work in your favor…for a change?!
Contact Farmers First Trust at 800-480-8090 or take a look at our web site at Farmers First Trust for more information. We provide a free financial analysis on your farm sale so you can see how the math can change and create your new perspective.
Michael L Gustafson is a Principal at Farmers First Trust.
Feel free to contact Mike at 800-480-8090.