Navigating the balance between farm debt and business growth can be a challenge for many farmers. In a lot of ways, it can feel like a catch-22 – you need to incur debt to grow your farm, but more debt can add significant stress and risk to your current lifestyle.
Many farmers find themselves in this predicament – how do you grow a multi-million dollar operation you can pass down to future generations without passing on the mountain of debt you borrowed to acquire it? While there’s no one-size-fits-all solution, there are a few strategies available that can help.
In this article, we’ll outline some strategies used by our clients as well as point out some important points to factor into your decision making.
Here’s a common scenario: You want to expand your farming operation and you require funding to do it, however, you don’t have it readily available through cash flow, so you take on debt.
Whether you go for a Term Loan to buy more land or use overdraft facilities for working capital (e.g. Livestock Finance), it’s crucial to understand the associated higher interest rates and terms.
Term loans are great for long-term investments like land purchases, while overdraft debt is typically used for short-term working capital and comes with a higher interest rate.
Before taking on additional debt to expand, it’s really important to make sure you can service that debt under different conditions. For example, if we face a dry season and you’ve maxed out your borrowing capacity, you’ll be in a tight spot.
Another important practice is to prepare for potential interest rate increases and check whether you can keep up with debt repayments if rates go up, because while predicting the future is impossible, preparing for worst-case scenarios is always a smart move.
One thing we always look at with our clients before they take on more debt to buy more land is the productivity of their current property. The reason for this is that enhancing the functioning of existing infrastructure could yield higher returns in the short term and help increase cash flow.
In saying this, if a good opportunity arises, such as the sale of an adjoining property, it may be worth your while considering expansion and taking on more debt to do it.
There isn’t a universal method to balance farm debt and business growth. Each farm’s circumstances are unique, so it’s important to get tailored advice from trusted advisors.
By seeking professional guidance and carefully planning your financial strategies, you can effectively manage farm debt while fostering business growth for your farm business.
Balancing farm debt and business growth is a complex challenge, but with the right strategies and expert advice, it’s entirely achievable. By proactively managing your finances, you can create a sustainable and prosperous future for your farm business.
If you’re ready to make informed decisions and secure your farm’s legacy, consult with your trusted adviser today. For personalised advice and tailored strategies, contact us now on (02) 5750 0519 or book an appointment with Matt Meehan here. Take the first step towards a balanced and thriving farming operation and the future you’ve been dreaming of.
We are pleased to advise that Lifesolver has merged with Advisory Partner and Practical Systems. Through this new group, we are able to strengthen our focus on rural people and businesses, with excellent local service (and offices).
From conducting market research to setting goals and projecting your finances, creating a profitable farm business plan might be just the thing you’re missing when trying to stay on track and plan for the future of your farm.
Whether you’re interested in cropping, livestock, or any other farming venture, this guide is designed to provide you with the knowledge and skills you’ll need to create a clear business plan for your farm. Let’s get started!
As the age-old adage goes, “Those who fail to plan, plan to fail.” This rings especially true in the realm of farming. Without a clear roadmap, achieving success can feel like you’re aiming at a moving target, but you what should you include in your farm business plan? That’s where we come into play with our guide to the 8 things to include in your farm business plan.
Who will own your farm in 10 years?
Designed to make you stop and think, this question instantly conjures images of the future and the possibilities that lie ahead. But what if we told you the only way to get as close as possible to your desired outcome is to get proactive about your succession plan?
An Introduction to Farm Succession Planning | In this guide, we’ll introduce you to the essentials of farm succession planning, helping you chart a course that preserves your legacy, focuses on family harmony, and ensures a smooth transition of farm ownership and management from one generation to the next.
