A farm couple were buying a large farm in the Central West of NSW. It had a timber homestead with a 3 metre verandah all around with a modern kitchen. It also had a second smaller house in which the vendors son and daughter-in-law had lived before buying their own place in another state.
Fences were okay but not brilliant – stock proof. The yards looked good. There were substantial grain silos and good sized shed plus some excellent dams – 5,000 and 10,000 Cubic metres. It was about a quarter timbered, half good grazing country with the right sort of trees growing and a nice modern 4 stand shearing shed.
Buying a business
They spent a day driving around the property with and without the present owner then came back to the house late afternoon. They were very enthusiastic about the place and were pretty interested.
Over a cup of tea the lady asked if they could see the last 5 years tax returns and assessments. The vendor was staggered. “What for”, he asked. “They are private!”
“Well”, the guy who was buying joined in “we are not just buying a block of land. We are buying a business. It is just as important to know how much money the place earns in wool and sheep sales and what it costs to run, as it is to check out the dams, yards and fences. We would keep the information completely confidential.”
The owner then went of, somewhat reluctantly and came back with tax returns. The prospective buyers had particularly asked for tax assessments so he had them too. When the buyer had looked over them he asked “Would you mind if I gave these to my farm financial consultant as I am not so good on figures myself? He is in Sydney, so nobody local will see them.”
“Go your hardest.” said the owner. “I’m the same as you with figures.”
Next day, back home in a rural city, the couple who had inspected the place scanned and sent the financial statements and tax assessments to their consultant in Sydney.
Doing the sums
The consultant, a qualified accountant and experienced farmer himself, looked over the figures and came back with these comments:
“The figures show 5 straight years of tax losses, so that is not too impressive, but the owners will say those are just “paper losses” so I have to look a bit deeper.
What stock is he running and what age are they? Some of his profits are probably in his ewes at a lot more money than they appear in the books. Some gear is probably over-depreciated.
When you looked in the shed did you see much fencing material or fuel? The expenses could include buying stuff in June to get a tax deduction for what will be used next year.
There is depreciation on 2 tractors and 2 vehicles. One of the vehicles may just be personal use but I suspect it is used at least half for the farm. Electricity I suspect is mainly private and probably part of fuel is private, but you could not run the place without them.
Looking through all of the expenses they look fairly normal to me.
How new are the fences and yards? It is possible that money has been spent in these 5 years on fences and yards that will last decades.
There is interest and borrowing charges and a debt has been reduced, plus consultants’ fees that probably relate to it.”
The buyers responded that there was not much fuel or fencing material in the shed & maybe 10% of the fencing was fairly new, there was a silo of oats and that the yards have a new race but that was about all. The consultant gave them a list of expenses and suggested they go back and talk with the vendors about how likely it was that expenses could be cut substantially to turn the losses into profits.
A Profitable Purchase
On the basis of what they had learned the buyers negotiated the sale price down by a quarter and by paying half in cash, the vendor gave them 8 years interest free vendor finance payable annually out of the wool & sheep sales, in return for him continuing to live in the main house until the price was paid in full. They came up with a budget for a modest profit in the first year, half as much again in the second year and a good profit in the 3rd year. It would be lean going but they reckoned they could pay off the balance of the purchase price within the 8 years and move from the smaller house into the main house then.
Moral – The best farm lifestyle is profitable and debt-free
It is good sense to buy any farm at or below market price with some interest-free vendor finance. But it is absolutely essential to buy a farm that is going to be profitable. Otherwise debt escalates out of control. That means reviewing past tax returns and verifying them with assessments. Tax assessments are the one document that cannot easily be rigged. Tax returns and financial statements can be completely false, just typed up for the unsuspecting buyer. The key to success is having a skilled consultant draw up realistic budgets on the basis that in each decade there might be 3 good years, 3 bad years and 4 moderate years. In the debt repayment period it is best to avoid all capital expenditure so that all profit goes to reduce debt. There is nothing quite as enjoyable as farming debt-free and earning good profits at the same time.
GBAC will be happy to help business owners and farmers suffering from drought or bushfires. Give GBAC a call or email. They know banks, business, farming and the problems of dealing with loans and creditors in such difficult circumstances.
If GBAC can set you on the right track at no cost they will. If you want them to assist with more major work then they will do the work at half cost up to March 2020.
Poetry “I love a sunburnt country… of droughts and flooding rains….
For flood and fire and famine, she pays us back threefold.”
So wrote our legendary poet Dorothea Mackellar, born in 1885. Her poem was published in 1908 when she was just 23 years old. What a beautiful legacy she left us. But it also reveals the challenging features of life in Australia. How will it pay you back threefold?
When the music stops “Nothing lasts, good or bad. It is good to remember when think the good times will roll on forever. Be Prepared.
Debt became so great a problem for Australian family businesses and farms after bank de-regulation and privatisation, that I converted my Chartered Accountancy practice into a debt solutions consultancy. It is far more satisfying than “The round eternal of the cashbook and the journal”.
It has possible to bring the most aggressive and threatening bankers from every major bank to see sense and negotiate a lower payout that at first appears reasonable, when we are able to clearly explain the debt circumstances and likely consequences of them not doing so.
We never threaten to take them to court. That is one forum in which banks are almost certain to win because they have vast amounts of money to pay the cleverest lawyers. We have developed our own unique strategies and they work extremely well for borrowers.
Debt
Recovery from the lengthy and unprecedented drought and bushfires that descended on Australians in 2018 and 2019 and have built to a crescendo of flame and smoke in early 2020, will be difficult and lengthy. That it comes on top of what for some is overwhelming debt and a crumbling economy is perhaps the last straw, the one that might “break the camel’s back”. Don’t let it do that to you!
Meanwhile the moneylenders in our major banks are basking in record profits gouged from their customers. They made billions of dollars that bank customers have been charged over and above the cost of providing those services – or for no service at all. This is the price Australians have paid for being sold out by their MPs who first de-regulated banks so they could do what they liked then sold all the government ones to private profiteers.
Recovery
There are some key steps I would take to recovery. But everyone’s situation is different according to their age, skills, source of income, debt level and assets, particularly cash. Do not follow these blindly. Consider them carefully and find a good professional with whom to discuss them. Then use or modify the ones that might help you:
Take control! Don’t trust anyone to make the decisions for you. Make them yourself after gathering all the advice you can and weigh up the alternatives..
Do everything possible to generate income without being limited to what you normally do.
The government will encourage you to spend which exposes you to risk. Leave boosting the economy to the government that has let it deteriorate.
If you have suffered insurable damage consider engaging an insurance assessor to tell you what you should claim.
Check out what fire and drought benefits are available from the governments if you are suffering losses and claim whatever you are eligible for.
Remember that easy interest-only loans for a few years have to be repaid sometime and may have to be refinanced at high interest rates eventually. “Borrower beware!”
If you have existing unmanageable & want some suggestions give us a call.
Now is the time to improve your relationship with your bankers. We can help you do that if you wish.
Prepare budgets for at least a few months ahead. Compare actual results each month to them and examine the differences. That enables you to constantly improve profitability and cashflow. If you are unsure how to do that ring and we will show you how.
Chat
We’ve been through enough troubles ourselves, including fires and droughts, to have a good idea of how hard it is. If you feel a chat with us at GBAC might help you bounce around some ideas and clarify your thoughts, give us a call
Planning your recovery is the best way to make it happen.
I watched as two lots of borrowers suffered the loss in one case and near loss in another, of their homes. The reason was Bad Borrowing. I don’t know whether either of them had troubled to consult an experienced loan consultant like GBAC Advisory, but their problems began with high interest loans from shadow bankers. These are the unregulated money-lenders that our federal & state Members of Parliament allow to decimate the lives of the poorer half of the country.
Quoted interest rates were 20 % pa in one case and 21% pa in another. In one case if the payments were not made on time the interest rate became 150% p.a. That is a bit higher than one borrower I dealt with this morning whose loan contract stated the interest rate at “20%”. When I saw it was a 3 month loan I looked back and saw that it was not 20% p.a. but 20% for 3 months – 80% p.a.
It paints a picture of our federal and State Members of Parliament that they endorse and permit this sort of robbery.
The borrowers wanted to get the loan on security of their property, but did not have the income to support a proper bank loan. When the bank declines a loan that is because the bank is fairly certain that the borrower will not be able to meet the repayments, which will mean selling up the home in the end. Now, banks don’t mind doing that, so when even they refuse a loan it means there is a very high risk.
At GBAC Advisory and through FairGO I have known borrowers to cool their heels for a couple of years, get their income stream up and save like mad, cutting out all but the most essential spending. Then they have gone back with a proven record on their bank statement of how much they can save or pay off a loan. The bank has been happy to lend them the money. Patience pays!
If anyone is faced with a major debt problem and looks like losing their home they can always call GBAC Advisory or FairGO.org. We can show them how best to deal with unscrupulous lenders. Going to court seems a waste of time as the lender will mostly have the money to engage far better lawyers and few judges I have seen know much about finances.
One might wonder why the Federal Government did not aim its Integrity legislation at banks and insurance companies as well as at trade unions. Then it may have been a fairer bill and protected more people. Surveys show that people do not trust politicians. Wonder why? There are so many good MPs, but the bad ones must rule the roost or there must be a lot of money flowing into party coffers for this ruthless exploitation of poorer people to be allowed
Try to avoid extra debt, particularly interest-bearing debt
Put down on paper what would happen if you sold all but the very best breeders then bred back stock rather than buying in.
Write down your fixed costs that have to be covered eg rates, insurance, loan repayments, vehicle rego, electricity.
Apply to everyone for time to pay.
Write a plan for the next drought based on what has happened this time.
Mine was “Go debt free asap; when long lush feed disappears start reducing stock numbers; stop spending on non-essentials; seek advice”. Last year it was good external advice that made me change direction in one particular that made a big difference.
If you have a dispute with your bank give GBAC a call and see what we can do about it .
Access every bit of government assistance on offer. Don’t be too proud. They are going to spend it anyway so it may as well go to you.
Be careful about spending big money on feeding stock, particularly if borrowed. Do figures to compare that to selling the stock, if possible. I bought a pole saw and walked the place cutting leaves for feed.
The thing that worked best for me was reducing stock numbers. It was heart-breaking but made sense in retrospect.
Watch out for the banks. They can be deadly. GBAC takes a very hard line with banks who do the wrong thing by farmers, which is most banks because they know the farmer knows farming a lot better than finance. You can always give me a call if the bank is not playing fair with you. I run FairGO and that can help plenty of farmers deal with their banks.
There were two farmers living near each other on roughly comparable farms in Australia.
One farmer, Tom, borrowed $2 million in good times to buy another block for that $2m. The bank was happy to lend him 100% of the $2m on security of both blocks. He borrowed $100,000 more to stock the new block and fix the yards and fences.
When it went dry and feed reduced in 2018 he became a bit nervous about feed so he locked up a couple of paddocks to spell them. Eventually though he had to open them up for feed because it did not rain.
When someone suggested he sell down stock he explained that his breeders were top quality and were the result of decades of breeding. It would cost a fortune to restock when the rain came. In the end it became so dry that numbers of stock started dying and the rest looked pretty ordinary.
When he figured many would just die or he’d have to shoot them, he trucked most of them out to sale and bought in feed for the rest. The cattle sold were in poor condition and prices were poor anyway, so he did not get much for them.
Then the bank rang to say he was over his limit and had missed two payments on his term loan. They’d just have to wait.
By the time the drought broke he was broke too because of the feed he was buying in. The ground was bare. Feed prices had skyrocketed. His debt has skyrocketed too. But he had managed to keep a quarter of his breeders. He started looking for a loan to buy back in to re-stock the place once the feed grew but that took months so he continued to hand feed a bit.
His neighbour, Bill, had also looked at the nearby block when it was for sale but figured he could not even raise half the money and would have to borrow the rest. So he gave it a miss. He told a friend “The problem with borrowing is that I would have to make repayments in dry or other hard times and that is not easy. I already have a small loan nearly cleared.”
He used Excel on his computer to graph a sort of index – every day he multiplied the rain in mm received for the year so far by the number of hectares he had and divided it by his livestock holding that day. He called it a “Drought Index”. It sort of told him how dry it was going – how much water had fallen on his place to grow pasture for each head of stock he was carrying. Nothing fancy. The graph fell as the rain didn’t.
In addition to that he had put a big note on his office wall reading “When lush long pasture goes, start reducing stock numbers.”
When it stated to go dry in 2018 the first thing he did was start to watch his graph carefully and as it fell, he cut out all unnecessary spending. He still had to pay rates and insurance and fuel for the vehicles but he used them sparingly.
As he drove around checking the stock one day he pulled himself up with a jolt and thought “The feed is looking a bit short and just not quite so good.”
Next sale week he mustered his stock, drafted off dries and other culls and sent them to the saleyards. His stock were in top condition and the market was high, so he did well at the sale. The proceeds he banked into a special “drought savings account” he had opened years ago at the bank.
But the season stayed dry with not a cloud in the sky. Every month he sold more of his stock, selling 10% to 20% each month or so. Every day he was looking at the blue sky, his graph, the pastures and his stock.
He rang the bank, as he still had that small debt from years ago that he was paying off. He pointed out to the banker that he had been making double payments for the past few years and asked if, should things get worse, he could take a break from repayments for a while to use up some for the fat he had accumulated in the account. After checking with the credit officers the banker rang back and said that would be fine as he was will in front of where he needed to be.
The banker asked if he had any recent financial statements that credit could have. He replied that he produced monthly Profit and Loss figures for each month and year to date, with columns showing last year’s results and the budget. He’d send a set in. They showed profits a bit better than last year and ahead of budget. He explained that was because he had sold stock as it went dry, converting them into profit. The banker said not many of his clients did that. The farmer added that he emailed the figures to GBAC monthly and with a 15 minute review that cost next to nothing, he was given a quick analysis of what the figures meant.
Bill had been told by an uncle that the farm needed to produce cash for him each year. So he had kept costs pretty low and squirreled money away in a bank account, without letting his boundary fences fail. That also gave him some fat to ride the drought if it persisted, which it did.
By the time rain with follow up rain came, he was only holding a quarter of the breeders he had two years before, but of course they were the best ones. He decided not to buy back in, but to breed up numbers. Natural increase was about 90% and deaths few. By hanging onto all the females and breeding from them, his numbers were back up in five years. Funds had been tight, as numbers were light, but that meant the pastures had recovered fairly quickly.
Comparisons can help
It is always interesting to see what other farmers do. That is one of the advantages of running our own places and consulting farmers all over Australia at the same time. You learn a good bit that way. I have also learned a good bit in workshops from people like Terry McKosker and Bud Williams.
END
It was suggested in the media today that meditation and mindfulness were a good way to relieve financial stress. I have a better way. Solve the financial problem!
A lady called Mary phones me and says she has a financial problem – the mortgage is months behind and the bank is going to repossess her home and sell it next week. Can I help?
Shall I suggest that she mediates for half an hour each day or listens to a mindfulness tape? No. What I do is I ask her to tell me about the problems that she has been having. A child died, another was sick, her husband lost his job and her Dad died, all of this happened in a short space of time and she had no money to pay the mortgage.
So I asked for the name and phone number of the lawyer who threatened her with sale of her home for the bank and I phoned him up. I explained that I would go into parliament the next day and tell all the MPs how ruthless and cruel this bank was and ask them to contact the bank directors to stop the eviction and sale. He listened patiently while I told the story and though I had not asked him to, said he would pass my comments on to his client. Next day Mary received an email saying the bank would not be selling her up as planned.
By doing a bit of research I learned she had some space vacant and asked if she would be happy to rent it out. She said yes. The rent would just about cover the loan repayments so she got working on it.
I then rang the bank officer who had emailed her and over a few phone discussions he agreed to accept her arrears over the rest of the loan term which was 12 years. It made a slight increase to monthly payments. The bank was very helpful.
I have mostly found banks very helpful. I like the phrase “Speak quietly and carry a big stick.” I have no hesitation about using a big stick on a bank that wants to screw a customer. I rarely have to do it a second time.
You can always get me via my loan consultancy greg@gbac.com.au or my advocacy for people needing help in dealing with government greg@fairgo.org .
Because the government is trying to get Australians into debt to solve Australia’s economic crises and enrich the bankers at the same time!!
How could your debt help government?
Because you will spend money to give others jobs and have to work harder to pay it off with interest and charges. That increases Australia’s productivity.
Recession threatens because people have pushed prices up high with borrowed money, by competing for what is available eg housing, groceries, power, petrol. They no longer need money to buy anything. They can borrow it on a credit card, get a loan or afterpay it. But when they have bought all they want they stop buying. When they lose jobs or profits fall and they cannot repay the debt, their assets are often “fire sold” by lenders and prices collapse.
The government is just trying to get the Australian people to rectify the problems it has caused by bad policy. There are better, safer ways to do that. I will offer my suggestions next time.
You have to laugh at Ken Henry, ex Chairman of NAB, not liking populist, (for the people), governments – nasty things like the banking & finance industry inquiry can happen when populism comes into play. He says government should listen to experts. That is true, but the fact is that it is the experts who have allowed the banks to lie, cheat, defraud and abuse their customers. The experts have been corrupted for the benefit of major companies seeking favourable laws and contracts from government to earn billions and pay executives millions.
The Australian people have been treated like dirt by the experts, whether de-regulating the banks and selling off the government owned ones to remove honest competition or depleting the Murray Darling river system.
All bank directors should be prosecuted for their breaches of Corporations law and the Crimes Act. Banks act on the instructions of Directors. Directors set policy (to obey the code of practice or not). The bank CEO is then responsible for doing what the bank directors decide and instructing bank staff on how to do that. The bank directors are responsible for ensuring that the CEO does what he or she is told and finding out whether the bank is or is not treating customers fairly, in accordance with the law and the Code of Banking Practice. Bank directors are directly responsible for the banking debacle uncovered by the Royal Commission. They set policy rather than deal with detail. The bank policy has been to entrap borrowers in unaffordable debt in order to make extraordinary profits.
This week Westpac refused to pay interest owed to a term deposit customer unless the customer personally travelled to the branch and gave a signature to collect it.
Yesterday we dealt with ANZ increasing a guarantee by an elderly couple by a multiple of 10 times, up to 100% of their home value on a loan to family members from which they got not 1 cent of value.
This week we have dealt with Suncorp lending a family a loan on which they had to repay, in the first and most years of the loan, 3 times their average earnings – just impossible.
We are also dealing with nab foreclosing on a family who fell behind on a loan because of serious health and mental health problems. Following our involvement nab has been very helpful in considering a good solution. We have found nab to be one of the best banks at rectifying problems.
If ever you are in trouble with a bank and you give FairGO or GBAC a call, the first thing that will be done is to contact the bank to let them know something is being done about the issue. The second thing to be done will be to find out what caused the problem. The third will be, if possible, to come up with realistic solutions that are acceptable to both you and the bank.
A good move that we find effective is, once the problem has been identified as having been caused by some unreasonable or illegal bank action, to lodge a complaint with the new Australian Financial Complaints Authority (AFCA).
However it needs to be understood that AFCA is a body owned and operated by the banks and financial services industry for the banks and financial services industry. GBAC can help you to set out your case against the bank very carefully and with reference to the prevailing Code of Banking practice when you took out the loan. Then you should clearly decide what you want out of your complaint to AFCA and be ready to act if you do not get it. FairGO provides a direct link to all Members of every Parliament in Australia via its Votergram service, so if you are not satisfied with the AFCA outcome you can then refer the matter to parliament, which is usually extremely effective.
The idea that parliament is made up of irresponsible men and women who behave like schoolchildren is totally incorrect and the fault of TV showings of parliament question time which is a bit of theatre designed to impress the voters watching on TV, which in fact does the very opposite.
A good 20% of the Members of any parliament will go out of their way to assist voters and that gives you enormous leverage for good government if you take advantage of it.
Government can work “for the people” but for that to happen it requires feedback, ideas, support and encouragement “by the people”. FairGO has helped Australians do that for over 30 years just as GBAC has helped Australian borrowers deal effectively with their banks for a bit longer. Good banking requires the same sort of involvement by borrowers. It is no good expecting the bank officer to look after the borrower. Bank officers look after the bank’s interests. Borrowers need to look after their own interests or engage someone like GBAC to do that for them.
The combined resources of FairGO and GBAC give bank customers very effective remedies against bank abuse. Feel free to call us on 0428 417 496 from wherever you are in Australia.
A farm couple were buying a large farm in the Central West of NSW. It had a timber homestead with a 3 metre verandah all around with a modern kitchen. It also had a second smaller house in which the vendors son and daughter-in-law had lived before buying their own place in another state.
Poetry