Chartered Accountancy & Farming
I miss our farm down Braidwood way in the Southern Tablelands, but not the droughts. Drought at Tullamore in the NSW Central West with sheep was far worse than Braidwood of course. Being a 4th generation farmer helped my Chartered Accountancy career embrace clients with farms and meatworks from one side of Australia to the other. Once we began to sort out bank farm loans and farm debt problems our client base spread from top of the country to the bottom. Few on the land are exempt from financial challenges in drought. In that sense I have been lucky that numbers are as much my game as pulling and marking calves or pressing wool bales.
Reluctantly I gave up farming to focus on the consultancy because it was impossible to do both. In the beginning I did a lot of travelling around farms in NSW. Then I found that the phone and fax enabled me to chat to farmers and negotiate with their banks quite easily from my farm or the city office. Today the internet, email, zoom etc makes it all so simple. Without my own livestock I can focus on helping other farmers deal with their finances. Finances are not foremost on most farmers’ minds like livestock or crops are, yet they are vital to survival. Drought affects farm loans, creditors, yields and cash management and that affects the farm and farming family.
Australia wide drought is devastating
It does not matter whether you are in FNQ, the Central West of NSW, Eire Peninsular, the WA Wheat belt, Tassie or the Top End, drought can bring very challenging money problems and many of the financial wizards, including bankers have no idea of what it is like on-farm in drought.
With drought a hot prospect this summer and fire an additional risk, at GBAC we are concentrating on setting up pre-drought financial strategies. That is similar to storing hay in the shed, grain in the silo and water in the dam. “Being Prepared” as the Scouts and Guides say, has a lot going for it. Robust financial models can help farmers choose their preferred drought strategies wisely with as few unpleasant surprises as possible. Knowing the likely financial outcome of each drought strategy goes a long way to prepare the bankers and calm them down if drought does strike and create havoc with the cashflow projections. Keeping bankers calm is just as productive as keeping livestock calm. Bank loans, farm mortgages, FDMs, creditor management, overdrafts and off farm work all need considering.
As a first step, Rural Financial Counsellors can be a great help, particularly with drought relief programs, forecasts and modelling.
All drought planning needs to help the farm survive and re-establish profitable production as soon as possible afterwards.
Feed, farm loans and FMDs
Drought is where those who have been able to save money in Farm Management Deposits receive a handsome pay-off. If they need to withdraw the money for stock feed the tax implications are near zero as the tax-deductible feed cost will offset the taxable withdrawal.
If on the other hand a farmer decides to sell down stock as pasture feed becomes scarcer the FMD can be used to squirrel away the proceeds of sale so that they can be used to re-stock when the feed recovers post-drought, that is ideal. The difficulty is that, for those who do not de-stock hard enough to get through without buying in feed, the sale proceeds from de-stocking can disappear on feed for the stock that remain. Then bank debt is used to buy in stock.
That can create a disaster for future decades. It is therefore a decision that is best discussed with a farm finance consultant well separated from the banks or other moneylenders. Whereas the bank manager used to be the source of trusted and helpful financial advice, the situation is quite the opposite now. The big banks don’t make billions and pay multi-million-dollar salaries through discouraging inappropriate borrowing. They make it by telling customers all of the benefits of loans without explaining any of the disadvantages. It is that desire to ensure no conflict of interest exists, that keeps GBAC away from any relationships with bankers except to investigate their conduct in relation to our clients and negotiate hard with them for compensation style debt solutions when they have misled clients into unaffordable debt, like failing to take fire flood and drought, commodity prices and government policy into account when offering loans.
Debt rescue
When called in to rescue farmers from unscrupulous bankers who fail to allow for extreme seasonal factors in debt management, we frequently find that the problems began in the aftermath of a fire, flood or drought. All of the major banks have operated in Australia for long enough to know that these are occupational hazards common in farming.
What we often see is the bankers encouraging farmers into long term debt increases, whereas what they need is to get rid of debt altogether. Cash management and debt management should be seen as essential elements of any long-term debt rescue exercise. Naturally enough most farmers in trouble look for an immediate increase in debt. Sometimes that is justifiable, but in most cases the immediate priority should be to reduce debt. That can involve difficult and unpleasant decisions. We all enjoy adding another block to the farm but abhor the idea of selling off a block to clear debt. When we do take that decision it needs to be part of a plan to clear debt completely and recover the title deeds then give loan farming a big miss. Cash management and debt management should be as much a part of any farm enterprise as paddock, stock, disease, pest and fence management.
The object of a farm should be to make as much profit as it can. Don’t be guided by the tax agent accountant who proudly shows you your figures that declare you will not contribute tax to the nation’s services like roads, health and education because you have lost money. Farmers need profit to get out of debt without selling off blocks, so don’t begrudge the government a bit of tax. It is important to find out all the ways to get out of debt. Savings, sale of land, bank debt write-offs and annual profits are key ways to do it. Within each of those there are many factors to consider.
Sometimes we feel that we want to have good looking fences, gates, yards, homes, front paddocks vehicles and livestock. The best way to get them is to run the farm lean and earn substantial profits, make sure only the necessary amount of tax is paid and save the rest. After five or ten years like that most farmers will have accumulated enough profits to improve their yards, fences, home and vehicle without going into debt. The stock will all be looking pretty good too. There is nothing like debt-free farming without the bank on your back taking the first share of everything you earn. I spent 20 years paying off my place at Braidwood and the next decade was pure bliss.
How can any small to medium sized business or farmer be properly served by a mortgage loan broker who is paid substantial commission by a bank and knows little about business or farming?
