Category: farm succession planning

Profit-sharing with the bank!

Check it out

How much are you profit-sharing with your bank or other moneylenders?

A quick look at the Profit and Loss Statement in your tax return this year will tell you. If you don’t want to wait that long, look at your 2023 tax return

Go to the Profit and Loss Statement and highlight the Net Profit at or near the bottom

Then go up the column to the line for Interest  or Interest paid and highlight it.

Compare the two figures.

If Net Profit is four or more times the amount shown as “Interest” then you are probably going okay. If Net Profit is 10 times Interest, or more you are certainly not working for the bank.

If Net Profit is about the same amount as Interest paid then you are sharing your profit equally with the bank or other moneylender. That means that if you are working a 12 hour day on your farm or in your business, you are working 6 of those hours for the bank.

If interest is 3 times your Net Profit there is a more serious problem. That means you are working 9 hours a day for the bank.

If interest is 10 times your Net Profit, you are working about 10 hours a day for the bank. Time to change that.

It’s good to know

It is good to know who is making the most out of your working day, because sometimes we work long and hard to make a mountain of money for others but very little for ourselves.

The solution is usually to plan your finances to increase the profit you earn and decrease the interest paid to the bank. A budget that increases profit and decreases debt is the best solution.

Plan your profit in advance

I had always known that, but when I first bought then expanded my merino sheep property at Tullamore and then added my beef cattle property at Braidwood, the truth came home to me in my own financial statements as well as those of my clients all over Australia. It is one thing to consult others but a quite different thing to do it yourself.

Doing my own budgets and changing the farm financial structure so that we were making most of the profit took a bit of time but was very rewarding. When we farm, our focus tends to be mainly on crops, livestock, vehicles, fences and feed. Finances do not enter the daily routine except when the bills come in and we look for funds to pay them.

As a friend once comment to a group discussion, “If you fail to plan, you plan to fail.” Financial Farming is what delivers the financial rewards for those long hard days of work

Greg Bloomfield, GBAC

Family farms and succession planning

Start a succession plan early

Succession planning comes up when mum and dad are looking to the future of      tSunset over the farm hillshe farm and want to leave their legacy to the next generation of farmers.  It may start when the children are in their teens or be left until they are in their 50’s. The earlier the better, but flexibility is important for the plan to succeed.

The end goal of the succession plan

A one size fits all approach does not generally suit and handing over debt to the next generation increases the risk of the farm eventually being lost to the bank. Main factors  to consider are the goals of the parents and children. That sets the pattern, but within those boundaries will be many complex issues, including relationships, finances, taxes, mortgages, competition amongst children and differing views of mum and dad.

Family conferences help

First step is discussions with each family member. This includes a sound understanding of the farm, its operations and finances and patient family conferences where people are encouraged to put their thoughts on the table. This should not be done as a final statement, but to open discussions. We really try at GBAC to get this right. Because, if handled badly  it could make some family members feel badly done by.

Avoid surprises that could cause consternation

Succession planning needs gentle diplomacy. Often some  family members have expectations that others don’t share. In the end we want to make everyone happy. That is why if Succession planning starts in their teens or twenties, everyone has a clear understanding of what is happening and most wishes can be accommodated over time.

Our role

What has helped us with succession planning for clients is experience. From my teens I was raised on Dale Carnegie’s book “How to win friends and influence people”. It gave me a different perspective on working with client families. What I learned about dealing with finances in my Chartered Accountancy courses. Running my own Merino property out west first was a good lead in to me succeeding my 2nd cousin by purchasing from him the beef cattle property in the Araluen Valley out of Braidwood, originally settled by my great grandfather.