Don’t borrow for day-to-day running costs
For farm debt to produce a profit it is generally better to fund operational expenditure out of cash in the bank. It is not good to borrow to cover farm operational expenses except in the rarest of circumstances.
If it becomes necessary to borrow to cover such expense as fuel for grain producers or feed for stock, there is a big risk that a crop failure or a stock price fall may result in residual debt. That then has to be cleared from a future season. All it takes to turn anticipated profits into losses is a bad season, a fall in prices or some other calamity. Frequently e
ven the cost of substantial refencing is not recovered and in many cases it is better to just repair the old fences.
I have spent plenty of money on running costs that I thought would be profitable only to find when I monitored results that the anticipated profit did not eventuate. The consequences of a mistake can be much greater when debt is involved. Sometimes we borrow to make operations easier and faster or become more productive. Then we have more time to spare and end up spending more money on whatever we do to fill in that time.
For most of my farming career I have felt that the less I borrowed the more money I made. We farmers always want to be busy and being busy often involves spending money. Frankly there is considerable merit, once the farm is working well and producing recurring profits, in spending a bit more time sitting on the verandah and enjoying the view. It is seeking to make a farm more profitable that often directs much of the profit to the moneylender.
Next hint will be about borrowing for capital expenditure.