Profit from Finance Know-How

When considering making a major equipment purchase, your financing strategy should be made in partnership with a business-savvy tax consultant. Every time an equipment need arises, every grower must consider its implication to their cash flow and overall tax strategy. The question is: How can they best shield and/or increase their profits?

As Rainbow sees it, there are four basic strategies. In this issue of Facts from the Field, we cover two options:

1) Cash Purchases: If you want to build the bottom line in the asset column of your profit and loss statement, cash purchases of big equipment might be the way to go. Often, such purchases can reduce overall implement cost. (Let's face it, nothing talks like real money!) Having cash in your pocket and being ready to buy should translate into a good discount, particularly if you're looking at a piece of equipment that's been sitting awhile on the dealer floor. A dealer can't sell below their cost, or they'll be out of business but, since the dealer's already paid for it, it's a business liability until it's out the door.

When preparing to negotiate, be aware that, when compared with regular consumer items, the profit margin on ag equipment is slim. Become knowledgeable about real prices in the marketplace and, armed with the facts and with money at hand, you can make your best deal.

Keep in mind, however, that purchasing equipment outright has a critical drawback that may not make it the best strategy for you: It ties up a big chunk of your cash. With the tightening grape market we're seeing in our region, you may find it's crucial to preserve the maneuverability that only comes with having money in the bank.

2) Equipment Leases: Increasingly, growers are making use of leases to support their equipment needs. These expenses are fully tax deductible, and they allow you to forecast your equipment costs to the penny. In an industry plagued by unpredictability, this offers some solid peace of mind. Furthermore, leases give you new equipment to work with, they permit you to schedule your leases so that you can ensure the equipment you're operating is always under warranty and they prevent you from being in the position of watching your asset age with each passing season.

Of course, leases have their down side--once you've entered into a lease, you're going to pay every penny you signed on for. If you go out of business, you are still liable for the payments, and there are no prepayment clauses.

A word to the wise from Rainbow: Lookout for the $1 lease buyout scams you'll find offered elsewhere. These are really equipment purchases, and the IRS knows it!

When considering a major equipment purchase, your financing strategy should be made in partnership with a business-savvy tax consultant. NEXT ISSUE: Rainbow examines financed purchases and rent-to-own options.

At $6.05 per Hour, It's a Darn Good Deal A John Deere 4wd 50 PTO horse power narrow vineyard tractor model 5310N, fully warranted, maintenance ensured, will cost you as low as $6.05 per hour.* • Take control of operating costs. • Increase up-time in the field. • Leave the headaches to Rainbow! For more information, call: Jim Munson, Northern Lake/Mendocino (707) 468-6549 (pager) munsonjim@netscape.net Bob Mitrovich, Napa/Sonoma (707) 316-2108 (pager) BobMitro@aol.com Jerry Smith, Napa/Sonoma (707) 324-1940 (pager) jvsmithbow@aol.com Ron Breedlove, Southern Mendocino/Northern Sonoma (707) 316-1175 (pager) breedloveron@hotmail.com *Based on a three-year, 900-hour-per-year lease; subject to credit approval.

BIG NEWS! TAX RELIEF FOR VINEYARDS:
Equipment Sales Tax Reduced

Beginning September 1, 2001, qualified sales and purchases (including leases) of farm equipment and machinery are exempt from a portion of sales tax. Currently, you'll benefit to the tune of 4.75%.

To qualify, equipment and machinery may be new or used, and purchased outright or under lease. The partial exemption also applies to sales and purchases of components and parts.

To find out more, or to download a PDF of the exemption certificate that must be filed to receive this tax benefit, click here.

Jim Mayfield Reports: It Will Get Worse Before Improving We've been reading about the grape glut for years. Every trade magazine is talking about it. Will the North Coast be sheltered from a threatened oversupply? When the Rainbow Ag sales staff gathers for a meeting, the first topic is grape prices. I have heard stories about new high-price records for some hillside red grapes, and I have heard horror stories about chardonnay grapes that simply don't sell. For almost a decade, grape prices have been steadily moving up. If you're a newcomer to the industry, you may have no memory of the 70's and 80's, when prices did experience a downslide. I can't, of course, predict grape prices, but I do know that Rainbow Ag can help growers implement technology that can help reduce production costs. Labor-saving devices like the Gregoire harvester, the Patchen Weedseeker system and Avidor mechanical leaf removers are just a few tools that provide ways to lower your cost of production without sacrificing quality. Challenge our sales staff to work with you in reducing the number of trips you make through your vineyard. Challenge Rainbow to show you how leasing or other financial tools may benefit your operation. Challenge Rainbow to create a preventative maintenance program to keep your equipment out of the repair shop. Even though your vineyard operation may be insulated from a price downslide, lowering your production costs still pays big dividends. If you have questions, have an idea for a news bulletin topic that would interest you, or if you just want to forward a comment to me, please do so at mayfield@rainbowag.com. Jim Mayfield President

Field Station Seminar: Defeating Bird Damage

On Friday, August 3, 2001, at the UC Field Station in Hopland, a number of presenters addressed the topic of grape loss to birds. All agreed that noisemakers and visual distractions were short-term solutions as birds quickly adapted when dinner was at stake.

The only way to consistently and completely control loss to birds is to invest in netting. Problem is, it's very expensive. Ultimately, each grower must either learn to live with a 1% to 5% loss of grapes to birds, or tighten their belt and get netting.

Mike Zeman: The Tractor Man For over eight years, Senior Service Technician Mike Zeman has been crawling over, under and through the tractors that till North Coast vineyards. From routine maintenance to major overhauls, he's the man who knows everything about tractors. This Sequoia Automotive Institute grad is constantly upgrading his certifications, so he's up-to-date on every machine we sell. Certified by John Deere, Mike also became SAME-certified by attending factory clinics in Italy. (Wait a minute--this is work?!) While we are confident that Mike knows how to repair every problem, he also customizes equipment to suit your unique vineyard architecture. If you want something special to put to work in your vineyard, then Mike's your man. You can put Mike to work on your equipment by contacting our Ukiah Service Department at (707)462-2402, or e-mailing him at service@rainbowag.com.

At Rainbow Agricultural Services, our primary interest is providing great service to our customers. If you have questions or comments, or if there is any way we can serve you better, please e-mail us at:
facts@rainbowag.com

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RAINBOW AGRICULTURAL SERVICES

UKIAH: 235 E Perkins St., 95482, Ph. (707) 462-2404, Fax 707-462-3627
CALISTOGA: 810 Foothill Blvd., 94515, Ph. (707) 942-4566, Fax 707-942-9668
NOVATO: 7546 Redwood Blvd., 94945, Ph. (415) 892-1030, Fax 415-893-1481
LAKEPORT: 1975 Argonaut Rd., 95453, Ph. (707) 279-0550, Fax 707-279-0594

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Copyright © 2001 Rainbow Agricultural Services