So you’re thinking of expanding

Expansion can be an exciting prospect, but does it make logistical and financial sense for you?
January 31, 2019
Written by Dave Orosz
So, you own a greenhouse and things have been going well. You know you need more space to grow, but you are unsure of how to proceed. Do you expand the existing operation or do you sell and buy another?

First, determine if you have room to expand. Expansion may require more than just added production space. Will you need more service buildings, housing for workers and/or other infrastructure, such as water retention ponds, septic beds, loading docks and parking lots? Expansion often requires service upgrades for water, electricity and heat (normally via natural gas) – this can be a challenge. Checking with your local utility and getting an agreement in writing is a must. If new main lines are required, the cost may be too steep to make the project viable.

Second, consider the layout. Does it need to be modified to optimize cost savings for an expanded operation? Efficiency is key in many aspects. The design may allow workers to be more efficient, opportunities for greater automation, as well as changes in the sorting/grading/packing areas of the operation. It may also include a design that is efficient from a construction-cost or heating standpoint, as well as irrigation, lighting and environmental controls.

Sometimes changes to the existing operation can be effectively and efficiently undertaken. Sometimes it will work with the addition of adjacent land, if it can be acquired. But operators may determine that their existing operation’s layout, scale and/or building attributes are not conducive to growth. If this is the case, your operation might still work for someone else and you might consider moving on to a different site.

Finally, consider the long-term financial aspects. Both you and your lender want you to be on solid financial ground and succeed in the future. You will need to consider cashflow – can you make payments, generate an income and replace capital, as required? Also consider your equity position as fallback if things don’t go as expected and the payback period for any loans that may be required for expansion.

Dave Orosz is a senior relationship manager with Farm Credit Canada in Essex, Ontario.

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