Poultry farming with little available capital is a common subject in my frequent emails with subscribers.
Here are two example questions on topic:
“How do I start a poultry farm with little capital? I am from Ghana”
“How can one be profitable in poultry farming in Nigeria with a little capital”
And to say it straight – I don’t think it really matters where you are based,
Whether The Philippines, Nigeria, Ghana, The Caribbean (or any of the beautiful places readers of The Big Book Project live…)
…the universal truths about capital and start-up funding STILL APPLY.
- Asset holders have a lean toward over asking on deal security.
- Asset acquisition is capital intensive.
- ROI on asset usage can be hard to pin down.
- Assets are typically highly desired, but woefully (horribly) underutilised.
- Asset valuation is largely misunderstood.
- Proof of expertise counts for a lot when negotiating.
- Desperation betrays.
Asset holders have a lean toward over asking on deal security.
Whether it be:
- or other types of asset
…the owners of such assets (across the classes, yes, including agri) tend to over ask on deal security.
Here’s an example of what I mean…
Think of the home rental market (this same example could easily apply to your farm lease agreement too).
You have asset holders = landlords and prospective leasees = renters.
It often goes that landlords draft a lease agreement including the following clauses:
- receipt of a cash deposit worth so many months of rent
- rent paid (monthly) in advance
- credit check clearance
- work/employment references
- damages deposit
And all of this on the basis of covering what they say is their risk.
Their fear, primarily, being non-payment of rent.
i.e. what happens if a tenant, either wilfully or through some personal difficulty is unable to pay rent…
Landlords before committing ask themselves…”what covers my obligations if the worst happens?”
A valid concern. Of course, it’s entirely reasonable that a landlord must consider the downside before entering into the arrangement.
But what about the tenant?
Don’t they also carry risk?
Is the landlord immune to failure within this arrangement?
What if they default on their mortgage payments?
Or, lose their primary source of income?
If they don’t recover and the bank enforce foreclosure –
…who will cover the tenant’s costs of finding a securing another home in a suitable place and timeframe?
Should the tenant then, in an attempt to cover their personal risk, counter by asking the landlord for:
- a clean credit check?
- proof of income?
- an employer or work reference?
- a guarantor, if their income fails?
- a backup property to move into should they be unable to sustain the mortgage?
But what about the risk of the tenant?
Where is the deal equality?
Sadly, in business, you don’t get deal equality handed to you by the opposition –
You’ve got to fight (negotiate) for it.
And you CAN fight for it successfully if you know how.
If fought well, perhaps a tenant could negotiate themselves OUT OF paying upfront monies etc.
This immediately swings the ROI back in the tenant’s favour.
Asset acquisition is capital intensive.
It’s just the way it goes.
Business assets like land or buildings, for example, cost capital.
i.e. one-off monies used for acquisition and starting up.
However, are your capital cost items (or things you spent capital on) actually ASSETS?
In other words,
Do they contribute to the growth of your business?
Are they generating a profitable income for your poultry farm?
…they might just be worth the initial investment IF enough profit is to be made.
But before passing a final judgement on the investment worthiness of any particular capital asset,
You’ve got to be able to QUANTIFY, not just qualify.
Simply, saying, “I’m going to make a profit by buying that egg cleaning machine”…is NOT good enough.
In theory, this might be true – but,
- WHAT are the alternatives to that purchase?
- HOW MUCH do you think it will save you against each alternative?
- WHAT is your breakeven price for purchasing the kit?
- Given your quotes from vendors, WHICH will be the most profitable option?
- Therefore, what is your overall ROI on this investment?
- Is that ROI in line with your ROI trajectory for your project? i.e. will it accelerate you or slow you down?
- Do you need to downgrade your ROI expectations?
- Or, do you need a more rewarding capital purchase? i.e. an egg cleaning machine with better output vs. cost.
ROI on asset usage can be hard to pin down.
When you buy a capital asset, it can feel a bit like, “Great. Job done.”
But is that kind of thinking premature?
Well, by definition, an asset is only an asset if it makes profitable income and adds ROI value.
It’s not an asset if just works and does what you bought it to do.
Without the profitable income derived from it, your asset is actually a liability.
Something that you paid money for, but then actually costs you to use over time.
And that’s just it.
Many think that an asset only cost them to buy it.
But this is incorrect.
An asset continually costs:
If its profitability doesn’t OUTSTRIP the cost, it will quickly erode your ROI…
…leaving your business exposed.
So, in response, we pin down the usage of every asset to a measurable output and then we calculate the output value.
This output value minus costs = net profitable income of the asset.
This is what I mean by quantifying your asset ROI.
Do this for EVERY capital asset purchased and you’ll have the mastery on ROI projection on all capital purchases.
Assets are typically highly desired, but woefully (horribly) underutilised.
Everybody seems to think (according to the sale brochure) that the next capital purchase is guaranteed to be a money-spinner.
Whether it be that new automatic bird feeder and drinker kit, or that larger birdhouse…
…let me tell you…
…it isn’t going to generate you ROI, just because it’s bigger, better and shinier than the current version.
It’s got to be pushed through its paces to the MAX, and STRATEGICALLY so –
In order to score your business the optimal return.
I press the point because you only have to look at your local Gumtree ads, eBay or preloved listing to see…
…we buy things all the time, and WAY before we get any profitable use out of them – we throw them away (literally brand new, in the box).
Do this with your business and you DECIMATE your ROI.
Get strategic about squeezing out EVERY drop and grain of MEASURABLE ROI each capital item gain you.
Asset valuation is largely misunderstood.
Often our method of evaluating price is doing a quick comparison against the nearest competitor.
Whilst this is how consumers buy goods,
If we as business owners adopt the same approach we’d very quickly bankrupt our operation.
What is a vendor’s list price based on?
Cost + a few living expenses (earnings)?
Cost + earnings + money to reinvest?
All of the above plus private jet money?
My point is, you can’t rely on a vendor to tell you how much your next investment will cost you.
Sure they have the right to charge you whatever they wish,
But you don’t have to pay it.
Think it through…there are other like-for-like offers – perhaps cheaper, or offering better long term ROI.
Plus there are outside-of-the-box alternatives.
Perhaps DIY options even etc.
You have to determine the cost of what your next investment will be and seek out the best fit on the market.
Proof of expertise counts for a lot when negotiating.
A little while ago whilst looking into commercial leases across various brick-and-mortar industries,
I came across a certain owner of coin-operated laundromats.
He had a website selling a DVD saying how he could get people who wanted to start up a brand new laundromat entirely RENT FREE.
I immediately thought, SCAM.
But he had hours of testimonial video from various startups who were delighted with what he did for them.
Now, of course, I’m not naive to think that people can’t fake their testimonials.
But closely examining his material I noticed his METHOD – how he was able to legitimately pull off his feat.
It’s 3 fold:
- He REALLY knows the laundry business INSIDE OUT.
- He owns MANY and he does EVERYTHING HIMSELF. Maintains the machines, refits the shop etc. the only thing he doesn’t do is the laundry services – because he’s got many shops.
- He hires the shop out to sit-in workers who rent the shop and take all the service wash income. He banks the machine money.
- He can really sniff out a struggling shop owner.
- All the telltale signs are familiar to him and he reads them like a book.
- Like most investors, he knows how to identify a distressed asset.
- Not only that he knows WHY it is distressed. And even more so, he knows how to drag the asset out of the trash and make it right again…for a discounted, ROI-maximising price, of course.
- He really knows the business transfer process.
- He knows buying laundromats like we buy eggs at the market.
- He knows how to spot good deals and what to do and say to snap them up.
- He knows how to walk vendors through the steps of reaching a deal.
- He knows his strengths and the opposition’s weaknesses.
- He is not afraid to go for the ‘pin’ once he knows he’s got his opponent where he wants them.
- He’s a pro at wrestling great assets at GREAT PRICES out of the hands of distressed owners.
Now whilst this all might sound quite cold, hard and heartless.
What our laundromat expert knows is that a distressed asset is actually a liability – which is costing the current owner WAY ABOVE what they had pictured putting in to keep it going.
In many cases the current owner is:
- late on bills
- defaulting on the mortgage
- losing customers
- have mounting repairs to see too
- avoiding walk-in customers footfall
- behind a screen
- left his shop floor looking like he’s absent
…ultimately the commercial shipwreck of insolvency.
And although their crying on the inside of that debt chamber otherwise known as their laundromat business,
When they get buying interest – they might behave like it’s not welcome, but the signs say they’re desperate.
But like most of us, they just don’t want to say so, in case their apparent weakness is exploited.
As an expert buyer, your skill is in coming alongside the vendor and bringing them into deal, whilst leaving them with dignity intact.
And this way – between a 3-9 months RENT FREE start to the laundromat lease can be obtained…
…helping a startup to get running and build up a head of steam BEFORE 100% expenses kick in.
Sad to say, but it’s true. And a sure reality.
It’s what every predator lives for.
The day their prey is desperately afraid. And begins to trip over their own feet.
In the heat of negotiation especially over large scale investments and capital acquisition, desperation can really sell a person out.
It usually comes with losing confidence in your available options and feeling you NEED this deal.
Once, you get into that zone of thinking, it can often be better to walk away and re-group…
…rather than to battle on and lose everything.
Bonus: Strategic partnership (a.k.a. affiliation)
Why not come to the table with a higher value proposition than as a mere buyer.
Generate some vendor demand and sell it back to them in concessions or discount off your cost of acquisition. Even sell it back for cash commissions.
Can that really work? And with agri-equipment specifically?
Yes, it can.
Tim Marks is living proof.
Tim and his wife have been running a subcompact tractor business for some time.
It’s quite simple but very effective.
They hire out their services to local and regional homeowners with land…
…driving in fence posts
They get paid for each job not the day.
To perform their work, they hold a small-ish fleet of small scale agri-vehicles:
- sit-on mowers
Tim has HP (hire purchase) deals open with vendors to pay back for possession of the vehicles.
Nothing novel there.
But what if I were to tell you Tim get some great perks from his dealers:
- HUGELY discounted prices on purchase (saving $000’s)
- free trial of new models before other customers
- preferential upgrades
- premium add-ons to try at cost
TIm knows his dealers spend HUGE amounts on marketing.
And as we all know, that can be a very hit and miss kind of sport.
The more miss than hit and budgets are ROI-lite.
On thing dealers value so much that they incentivise it – is a referral.
It means someone else does the leg work to suggest the dealers’ solution to a prospective customer,
…and WoM (word of mouth marketing) boosts the dealer’s ROI (return on their marketing spend) through the roof.
But for Tim…
…does doing all that leg work do any more for him than get money off his purchase etc.?
It sure does.
Tim earns cash commission on sales too.
In fact, since unleashing his tractor sales referral engine otherwise known as his Tractor Time with Tim Youtube channel in 2015…
…he’s since attracted millions of visitors and currently has over 150,000 subscribers.
Pretty much ALL sub compact tractors owners and enthusiasts – looking for advice on:
- what add-ons to buy
- what upgrade model to get
- which part is best for a certain replacement
…and many other buying related enquiries, which (you’ve guessed it – ends up putting money right back in Tim’s pocket.)
His work serving this audience has enabled him to earn a full-time income, quitting his well paid city IT career.
And that’s aside from his actual client income.
Take home points
Captial to start a poultry farm business is rightly on your start-up agenda.
But my aim with this piece inform you of the common…
- pitfalls and
- points of leverage
…for achieving ROI on your capital purchases.
By paying attention to these, not only can you save money, but in the way of true business…
…MAKE money back, on every penny of capital spend invested.