The nose in, hands out approach.

Different lifestyles and stages of life often drive the succession conversation. Generally, we see two different generations working together with different cashflow needs.

Typically, the existing or the current generation may be aged between 50 – 80yrs of age and tend to take less risk to allow more time for family and travel. To achieve this lifestyle, they will need to increase their cashflow by way of dividends, salaries or drawings. In contrast to this, the next generation is wanting to grow the business, and growth of any kind requires cashflow.

With different generations and life stages comes different business strategies based on what each generation is working to achieve. As an advisory business, we spend a lot of time working with clients to develop and agree upon an intergenerational business strategy, often working through tension and tough conversations around reinvesting back into the business and when to take cash out of the business.

Developing and agreeing upon a business strategy is a normal and difficult step to take, as there can be an underlying, natural conflict between the generations before taking the business and family relationships into consideration.

Ideally, we look for a nose in, hands out scenario from the existing generations, where they are adding value, involved where they want to be, and are more strategic, however they have their hands out of the day-to-day business. This positioning will allow the next generation to step up and execute the business activities and get the day to day done their way.

To execute this approach, families need to set the guardrails and provide governance to the next generation and outline what is important to them.

When working with families, we start by developing an Owner Strategy Statement, with three key steps:

Step 1. Define Your Purpose

• Defining the purpose of your family business.
• Why do you want to own your business together as a family?

Step 2. Set Your Owner Goals

• Specify your concrete goals.
• A great exercise we do to determine goals is to review the Owner Strategy triangle. You can choose to prioritise any two of the goals at the expense of the third.

Step 3. Create Owner Guardrails

• It’s time to translate your purpose and goals into specific measurements that can be used to make decisions.
• Guiderails can be financial or non-financial.

Once a family’s strategy and guardrails are set, the next generation will be able to take the lead on the business knowing what’s important to both generations.

To create an Owner Strategy Statement, contact us today; Contact Us – Sproutag

“If you fail to plan, you are planning to fail.”

As farming businesses grow, the level of planning needs to grow with the business, so the planning process becomes much more important and complicated.

At SproutAg, one of our mantras to our clients is to “get organised”. When we have this conversation with clients, we’re quite direct because we see first hand the difference that being organised can make to a farming business and the opportunities that can arise.

2023 saw a large variance in commodity prices and seasonal fluctuations that saw working capital requirements and the cost of interest much higher than anticipated. Currently, we are still facing inflation in Australia, the cost of goods has not come down and we anticipate that interest rates will remain high. But within all of this, opportunities have arisen, and it is the well organised family businesses that can take advantage of these opportunities.

To get your family business organised, these are our top three areas for you to consider in 2024:

1. Getting through 2024 and what to consider
2. Planning for growth with positivity
3. Family business planning and generational planning

Getting Through 2024

The first step to getting through 2024 is to review 2023, and identify where your family business is at. This is achieved by using the ‘Where did the money go’ tool from our AgPro program. Following this review, you can complete three cashflow forecasts for the year, before setting up appropriate funding to achieve success.

Your first goal in working capital is to set funding limits that will cater for most scenarios, where you will only need to go back to the bank once as opposed to hat in hand later in the season asking for more. It is important to factor in higher costs and lower revenue, and to set your debt limits up one bracket for the year ahead. What we find with clients is that working capital increases were quite frequent towards the end of 2023, and they take time, so it is important to have the philosophy to tackle this only once in 2024. This is also the time to consider and work in small opportunities for your family business, i.e. livestock purchases or other opportunities.

For additional help and tools talk to your local SproutAg adviser.

Planning for Growth

If you’re planning to develop your country or farming infrastructure or looking to buy new machinery or another property, get organised and don’t wait until the last minute – plan for the acquisition and development and get the acquisition pre-approved ahead of time. Getting pre-approval can take a considerable amount of time, so it is important to get your ducks in a row early in the year to make the process easier.

It’s important to remember that growth often comes from careful planning.

Family Planning and Generational Planning
Your third area to consider in 2024 is family business planning and generational planning. You need to start by asking yourself, “What are my asset policies in the business?” What we mean by this is, you have your farming assets, and you may have three children. How do you think about your assets longer term and how do you start to set yourself up so that one day you may not rely on the day-to-day farming or trading entities.

Family businesses who do well with succession planning and transitioning start the process early, giving themselves time. There is no better time to start your longer-term planning than today!

Here are some key questions to ask yourself to get started:

Do I want my family business to continue to the next generation?
What are your family’s long-term (10-30 year) goals?

Once these long-term goals have been identified, we break it down and look at the next three to ten years:

• Where do you want to live?
• What do you want to be doing?
• What will your lifestyle look like?
• What will your asset policy look like for working and non-working family members?
• How do you communicate and set expectation early?

Find out more about our succession planning guide here.

To get your finance organised for 2024, our biggest advice is to be proactive and do something about it!

Getting stuck in farm succession planning and how to get out.
We often work with families on farm succession planning who’ve frustratingly been going around in circles for years and have become stuck in the decision-making process. When we start the conversation, it’s soon discovered that there may only be a few small changes to make and that it is easy to become unstuck. For some families it may take a significant catalyst to commence their succession planning i.e. a health diagnosis, serious fallout or a long-held disagreement.

When working in a family business, you’re managing blood relations, finances and a business, and it can often be difficult to get the combination of the three correct. When there is deep respect and love for family members involved, the conversations can be more difficult to have.

What do we mean by getting stuck in farm succession planning?
Families can often get stuck in the decision-making process, when issues are avoided or when discussions go around in circles, sometimes for years, or even decades. An issue may be approached, but if there are disagreements or misalignments it can easily become stuck.

What does being stuck look like?
Being stuck can take many forms, an issue may never be spoken about, or if it is, there is constant conflict over the smallest discussion.

What are the consequences of being stuck?
In our experience, ‘becoming stuck’ not only has consequences on the business, but also strains on family relationships that continue to escalate and mental health issues that arise from unresolved problems year after year.

What can happen to the business?
When families aren’t aligned, a business can go around in circles and major decisions are delayed or put on hold. This can affect a business’s ability to make acquisitions or further develop the operation with new or innovative ideas limiting the business’s productivity.

Commonalities and tools to manage being stuck.
Common areas where we see clients stuck and unable to progress with succession planning are:

Common Barrier Number One:
When an existing generation worry that there will be a divorce event in the next generation, and that they will lose their wealth. As a result, the decision-making process grinds to a halt, sometimes before it even starts.

This scenario may take the SproutAg team two or three conversations to understand that this possibility is seen as a roadblock to the current business owners in that family. While there are many tools available to mitigate the risks for family members against family law events, family members can feel uncomfortable raising the topic, which leads to the family being stuck on an issue they don’t feel comfortable discussing. Each family and family business structure is different, and to enable future growth and to protect the broader family there are different tools available including:
– Marital deed or prenup (although these are not as common in Australia)
– Sunset clause
– Registering a caveat and/or second mortgage.

*Note that every circumstance is different, and that these tools are not recommended for individualised scenarios. For individual advice, reach out to the SproutAg team.

Common Barrier Number Two:
The existing generation wants to keep working on the farm and still be involved.
The next generation can often see the desire for the existing generation wanting to stay involved and not wanting to give up control or take on the next generation’s new ideas. These unspoken feelings can lead to family conflict and can cause families to become stuck. Often there are few roles and responsibilities that the existing generations wish to keep, however it is important to identify these early in the succession planning process and keep them at the forefront of the plan to ensure all parties are accountable.
– Meeting schedules
– Roles and responsibilities map.
– Future organisational chart.
– Employment contract with set roles and responsibilities.

Download a copy of our free succession planning guide on our website here.

Ag Bank Appetite 

When assessing borrowers for a new farm loan, we’re generally seeing banks play a long game around commodity prices and using averages across a five-year period. Most Australian banks that offer agrifinance use what’s referred to as ‘year-in-year-out’ to determine cash flow and annual cashflow average when assessing whether or not a farming business has the ability to pay back the facility. This year-in-year-out approach takes into consideration where the business will be in four or five years and factors in the build-up of livestock numbers, seasonal prices and normalises one-off expenses. The SproutAg team have seen a measured and practical approach to this, in particular using the five-year averages for commodity prices.  

In addition to this, some of the rural banks have changed their policies around serviceability and have started to move away from fully amortising these loans in their assessments and are now using interest only coverage ratios. There are also some banks that have not changed their policies and this has impacted on their ability to service new loans, so this approach has been adopted by some while other banks are yet to catch up. For the banks yet to catch up, in most of their annual reports they have identified that they will be allocating more capital to their business bank portfolios and hopefully their agribusiness divisions.  

All in all, we’re still seeing a strong appetite from some of the banks, however there are others who have turned the tap off!. 

Agribusiness Finance Interest Rates 

As we move towards the end of 2023, We’re currently seeing some inconsistency across interest rates, with up to 2.70% difference over the last few weeks – a massive contrast! This large variation in rates offered by the banks is the unlike anything we have seen over SproutAg’s seven-year history. 

We have managed to help our clients navigate this though, recently placing a client’s banking out to tender. During this process we were able to help them reduce their rate of 9.05% down to 6.35%.  

What can you do about it? 

With all the changes happening in agrifinance, here are our top tips for you to navigate the rocky waters: 

• If your operation needs more working capital for next year, we’d recommend starting the process now and completing it for the whole year ahead.
• Cashflow and financial structure are more important than interest rates in the current market.  
• If you have fodder or grass available, set up a livestock finance facility so you can take those good buying and trading opportunities when they present.  
• Chat to an advisor about reducing your interested rate if it is more than 1% over the market. 

Getting farm finance while you’re growing your breeding stock can be challenging. This period typically doesn’t look great financially because you lose potential income when you hold back female stock to increase your herd/flock or have higher costs if you opt to buy new livestock. Despite this, it’s not impossible to get farm finance if you do your homework.

Many of our clients have difficulty getting farm finance during this time. However, with these simple tips, you can show your bank manager that your business is viable.

1. Show you have a plan

A plan shows your bank manager you have a strategy guiding your business. The plan should clearly show your farm’s optimal herd or flock size and when you expect to achieve it.

2. Line up your livestock numbers with your financial statement

Pull together the number of breeding stock you have, with retained female numbers separate from the last five years. These numbers should be presented against your financial statements to show the impact.

3. Use your livestock schedules to support your growth goals

Your livestock accounts are an important way to back up the herd size you want to get to. This also shows how you will achieve this goal and should match up with your cash flow projects.

4. More on cashflow

You need to prove you have the cash flow reserves to support your business during the lean years when you’re building your breeding stock by keeping female livestock. Often, this is the time to take up interest-only payments.

5. Keep it simple

Sometimes you can overcomplicate the information you provide the bank when all you should do is show a clear story on how you’re working toward your goal.

This is a summary to give you general information on how to raise finance when things are lean while building breeding stock. All farming businesses are different, we can help you create a plan and help you present your business when it comes time to raising finance. Get in touch with your local SproutAg representative today to find out more.

What is Agribusiness? An Overview of the Agricultural Industry

Agribusiness is a term that combines agriculture and business, referring to any commercial activity related to farming and food production, through all stages of the process starting at pre-farm all the way through to retail.

The agribusiness industry is an essential part of the global economy, contributing significantly to the GDP of many countries. In highly industrialised countries, many activities essential to agriculture are carried out separately from the farm. Agribusiness has become increasingly important in recent years due to the growing demand for food and the need to feed a growing global population.

The industry faces many challenges, including climate change, water scarcity, and the need to produce more food with fewer resources. As the world’s population continues to grow, the agribusiness industry will play a critical role in ensuring that there is enough food to feed everyone. In Australia particularly, farming and agribusiness play a significant role in our regional and rural areas, not only having a consequential impact on local economies, but also on the social wellbeing with many agribusinesses embedded and connected within their communities and families.

Definition of Agribusiness

Agribusiness is a term used to describe all the activities involved in producing and distributing agricultural products. It encompasses all aspects of agriculture, from crop production and farming operations to the sale of agricultural commodities, including companies that produce fertilisers and pesticides, farming equipment manufacturers, food distribution companies, and more.

The agribusiness sector includes a wide range of enterprises involved in producing, processing, and distribution of food and fibre products and by-products, as well as cultivated products for consumer use. It is a complex industry that requires a wide range of skills, including farming, marketing, finance, and agribusiness management.

This industry is an essential part of the economy, as it provides food and other agricultural products to consumers throughout Australia and worldwide.

History of the Agribusiness Industry

The history of agribusiness can be traced back to the early days of agriculture, when farmers began to specialise in certain crops and began to trade their surplus with other farmers. As agriculture became more sophisticated, so did the businesses that supported it.

The modern agribusiness industry began to take shape in the early 20th century, as advances in technology and transportation made it possible to produce and distribute agricultural products on a large scale. The introduction of new farming techniques, such as mechanisation and the use of chemical fertilisers and pesticides, also helped to increase agricultural productivity and efficiency.

Today, agribusiness is a major industry that plays a critical role in feeding the world’s growing population. As the demand for food and other agricultural products continues to increase, agribusiness will remain an important and dynamic industry that is constantly evolving to meet the needs of consumers and farmers alike.

Types of Agricultural Production in Agribusiness

Agribusiness is a broad term that encompasses all commercial activities related to farming, agriculture and retail food supply. It includes a wide range of industries, from farming and ranching to forestry and fishing. Here are some of the main types of agribusiness:

Farming

Farming is the cultivation of crops and the rearing of livestock for food, fuel, and other products. This includes everything from small-scale family farms to large commercial operations. Farming can be divided into several categories, including: 

• Arable farming: the cultivation of crops like wheat, corn, and barley 
• Livestock farming: the rearing of animals like cows, pigs, and chickens for meat, milk, and eggs 
• Mixed farming: a combination of arable and livestock farming 

Grazier

Graziers rear livestock on a large scale, typically in a semi-arid or arid environment. Graziers produce animals like cattle, sheep, and goats for meat, wool, and milk. Graziers often manage a lot of land, and have to deal with issues like drought, wildfires, and predators. 

Forestry 

Forestry is the management of forests for timber, paper, and other wood products. Foresters plant and harvest trees, manage forest ecosystems, and protect forests from pests, diseases, and wildfires. Forestry also involves the conservation of wildlife habitats and the preservation of biodiversity. 

Fishing 

Fishing is the harvesting of fish and other aquatic animals for food, sport, and other purposes. Fishermen use a variety of techniques, from nets and traps to lines and hooks, to catch fish in freshwater and saltwater environments. Fishing can be a sustainable industry when managed properly, but overfishing and other environmental issues can threaten fish populations. 

Role of Agribusiness in the Economy 

Agribusiness plays a vital role in the economy of many countries. The sector provides employment opportunities to a significant percentage of the population, especially in rural areas. In addition, it contributes to the overall economic growth of a country through exports and the supply of raw materials to other industries. 

The following are some of the ways in which agribusiness contributes to the economy: 

Employment 

Agribusiness provides employment opportunities to millions of people worldwide. According to the World Bank, the sector employs approximately 26% of the global population, the majority of which is in developing nations. In developing countries, agriculture accounts for up to 70% of total employment. The sector provides jobs not only in farming but also in processing, packaging, transportation, and marketing of agricultural products. 

Finance & Income Generation 

Agribusiness generates income for farmers and other stakeholders in the supply chain. By providing a market for their products, farmers can earn a decent income and improve their standard of living. In addition, agribusiness creates opportunities for entrepreneurs to invest in processing, packaging, and marketing of agricultural products, which generates income for themselves and their employees. 

Exports 

Agribusiness is a significant contributor to the export earnings of many countries. Agricultural products such as coffee, tea, cocoa, and fruits are some of the most traded commodities in the world. In addition, agribusiness provides a market for other industries such as manufacturing, which rely on agricultural raw materials. 

Food Security 

Agribusiness plays a critical role in ensuring food security in many countries. By producing enough food to meet the needs of the population, agribusiness reduces the reliance on food imports, which can be expensive and unreliable. In addition, agribusiness promotes the adoption of modern farming techniques and technologies, which increase productivity and reduce post-harvest losses. 

Challenges Facing Agribusiness 

Agribusiness faces many challenges that can threaten the industry’s sustainability and profitability. In this section, we will discuss three major challenges facing agribusiness today: climate change, market volatility, and supply chain issues. 

Climate Change 

Climate change is a significant challenge facing the agribusiness industry. Rising temperatures, changing precipitation patterns, and extreme weather events are impacting crop yields, soil health, and water availability. As a result, farmers are facing increased costs, reduced yields, and greater risks. 

Adapting to climate change requires significant investment in research and development, new technologies, and infrastructure. For example, farmers may need to invest in irrigation systems, drought-resistant crops, and precision agriculture technologies to manage water and nutrient use more efficiently. 

Market Volatility 

Market volatility is a significant challenge for agribusiness. Prices for agricultural commodities can be volatile, driven by factors such as weather, supply and demand, and geopolitical events. This volatility can make it difficult for farmers to plan and manage their businesses effectively. 

To manage market volatility, farmers and agribusinesses must develop strategies to hedge against price fluctuations, such as forward contracts, futures, and options. Additionally, they may need to diversify their operations to reduce their exposure to any one commodity. 

Supply Chain Issues 

Supply chain issues are another significant challenge facing agribusiness. The COVID-19 pandemic highlighted the vulnerabilities of global supply chains, with disruptions to transportation, labour, and processing facilities impacting the availability of agricultural products. 

To mitigate supply chain risks, agribusinesses must develop resilient and flexible supply chains. This may involve investing in local processing facilities, diversifying suppliers, and building strategic partnerships with other stakeholders in the supply chain. 

Opportunities in Agribusiness 

Agribusiness is a rapidly growing sector that presents numerous opportunities for investors, entrepreneurs, and farmers. The industry is constantly evolving, and new technologies and practices are emerging to improve productivity, efficiency, and sustainability. This section will explore some of the opportunities in agribusiness, including technological advancements and sustainable practices. 

Technological Advancements 

One of the most significant opportunities in agribusiness is the adoption of new technologies. From precision agriculture to biotechnology, there are numerous ways that technology can improve productivity and efficiency in the sector. For example, precision agriculture uses GPS, sensors, and other technologies to monitor crops and soil conditions, allowing farmers to make data-driven decisions about planting, fertilising, and harvesting. Biotechnology, on the other hand, involves the use of genetic engineering to create crops that are more resistant to pests and diseases, or that have higher yields. 

Other technological advancements in agribusiness include: 

• Robotics and automation: Robots can be used for tasks such as planting, weeding, and harvesting, reducing the need for manual labour and increasing efficiency. 
• Drones: Drones can be used to monitor crops, assess soil conditions, and spray pesticides and fertilisers. 
• Big data: The use of big data analytics can help farmers make more informed decisions about planting, fertilising, and harvesting, based on data such as weather patterns and market demand. 

Sustainable Practices 

Another significant opportunity in agribusiness is the adoption of sustainable practices. With increasing concerns about climate change and environmental degradation, there is growing demand for food that is produced in an environmentally friendly way. Sustainable practices can also improve efficiency and reduce costs, making them an attractive option for farmers and agribusinesses. 

Some examples of sustainable practices in agribusiness include: 

• Organic farming: Organic farming involves the use of natural fertilisers and pest control methods, and avoids the use of synthetic chemicals and genetically modified organisms. 
• Conservation agriculture: Conservation agriculture involves practices such as reduced tillage, cover cropping, and crop rotation, which help to improve soil health and reduce erosion. 
• Agroforestry: Agroforestry involves the integration of trees into farming systems, providing benefits such as shade, windbreaks, and improved soil fertility. 

Agribusiness presents numerous opportunities for investors, entrepreneurs, and farmers. Technological advancements and sustainable practices are just two examples of the ways that the industry is evolving to meet the challenges of the future. By embracing these opportunities, agribusinesses can improve productivity, efficiency, and sustainability, while also meeting the growing demand for food that is produced in an environmentally friendly way. 

Future of Agribusiness 

The future of agribusiness looks promising, with the industry poised to undergo significant changes in the coming years. Advancements in technology and shifting consumer demands are driving this transformation. Here are some of the key trends that are shaping the future of agribusiness: 

AgTech 

AgTech, or agricultural technology, is one of the most significant trends in agribusiness. The sector is expected to triple in size, with the market worth $12.4 billion in 2020 and projected to reach $34.1 billion by 2026. In Australia alone, there are over 300-400 young startup companies that are seeking game-changing digital technologies to enhance their operations. These technologies include precision agriculture, drones, robotics, and artificial intelligence, among others. They help farmers to reduce costs, increase yields, and improve efficiency. 

Sustainability 

Sustainability is another critical trend that is shaping the future of agribusiness. Consumers are increasingly concerned about the environmental impact of food production. As a result, there is a growing demand for sustainably produced food. This trend is driving the adoption of sustainable farming practices, such as regenerative agriculture, organic farming, and vertical farming. These practices help to reduce the environmental impact of food production while also improving the quality of the food. 

Changing Consumer Preferences 

Consumer preferences are changing, and this is having a significant impact on the future of agribusiness. Consumers are looking for healthier, more sustainable, and more ethically produced food. This trend is driving the adoption of plant-based diets, which are becoming increasingly popular. As a result, there is a growing demand for alternative protein sources, such as plant-based meat substitutes. 

Globalisation 

Globalisation is also shaping the future of agribusiness. The industry is becoming increasingly global, with more and more food being produced and consumed across borders. This trend is driving the need for improved supply chain management, logistics, and food safety standards. It is also creating new opportunities for farmers and agribusinesses to expand their operations and tap into new markets. 

The Business of Agriculture is More Accessible Than Ever with the Right Financing 

The global role agribusiness has to play is critical for a sustainable future. At SproutAg, we know a big part of ensuring the effectiveness of agricultural production and processes is simplified and stress-free access to financing when you need it most. 

Our specialised team are experienced in agribusiness finance, business advisory, succession planning and all things finance in farming. Contact our team today to learn how we can help secure the financing your agribusiness needs.

Legacy Doesn’t Happen By Accident – Succession Planning Needs Strategic Planning

Significant life events can have a profound impact on succession planning, and keeping ahead of them can influence the success of a family’s succession transition. Ideally, the best time to start succession planning is:

• Before the next generation returns home to the family farming business;
• Before the next generation introduce a permanent partner; and
• Before the next generation start their families.

It’s important that the current generation (often ‘mum and dad’) start to lead the succession planning conversation and provide plans and guidelines before these significant life events take place.

Strategic Planning is Vital to be Succession Ready

At SproutAg, we see strategic planning as a key element in our succession ready program. By taking action before significant life events unfold, families can get ahead of challenges that may arise in the future. While the wider impact of these conversations and plans may not be immediate, it’s important to understand that these plans will set out guidelines to ensure a smooth transition from one generation to the next.

Guidelines for the current generation and family leaders to discuss can include:

• How do family members enter and exit the business?
• What are the asset policies for the business (working and non-working family members)?
• If the current generation were to stop working on the farm, how would they retire? Also, if they would like to continue to work, for how long?
• What are the roles and responsibilities in the business over time?
• Lifestyle post farm?
• The business plan around making this all work.

It’s important for families to remember that when making plans and setting these guidelines they are communicated clearly and frequently. It’s not just a one-time conversation for a family to have, particularly if there are changes made to the plans over time.

Having an Imperfect Succession Plan is Better Than No Succession Plan

The team at SproutAg make sure clients understand that sometimes things can change, and that succession plans may change over time. Your plans and guidelines should be set for where you are now. Aiming for perfection and overthinking the significant elements in your business and life can often deter you from undertaking this strategic plan, which would have a much greater impact on your business and family in the long-term.

Succession Planning is a Guide with Many Options, Not Set in Stone Rules

The plans and guidelines you set derive from your own core values, and are often a mix of your background, the family’s story, how you’ve been brought up and your own lived experience. At SproutAg, we believe it is the right of the current generation to set their plans and guidelines and communicate them with their families. We also believe that the earlier you start these discussions, the better the outcome for all involved.

What are the Advantages of Strategic Planning Early?

• Clarity to all family members.
• Clarity helps with expectations and also family relationships.
• Helps the next generation when they are choosing a career.
• Puts in place a communication program.
• Allows a business to continue or start to build assets and income to help with the plan.
• Any plan is better than no plan.
• Sets expectations for the whole family.

The importance of well-structured debt and repayments. 

As circumstances change, so too must we. Whether it be decreasing the stocking rate during a dry period, or re-structuring debt and repayments as interest rates rise, it is important to be on the front foot to make necessary changes in line with the current situation we find ourselves in. As a producer, it doesn’t matter if you’re located in Queensland or Victoria, or what type of operation you run, knowing how your debt is structured can be critical to your success. At SproutAg, we help a wide variety of producers, in particular those with mixed operations. Lower commodity prices (particularly in the livestock industry), rising interest rates off record lows and higher than normal input costs, means the need to adapt is more important than ever.  

At SproutAg, we understand that the cost of debt is important and can often be one of the higher costs in a business. However, knowing the structure of your debt and ensuring that your repayments match your cashflow is even more important. As a business owner, it is crucial to review not only your current interest rate, but also (and more importantly) the structure of your debt.  

Here are some key things to consider when reviewing your debt: 

• Is the repayment cycle or interest timing still appropriate for your business? 
• Do you have upcoming principal reductions? If so, do you know when they occur? 
• Does your interest only period start converting to principal and interest repayments? 
• Are your working capital limits still appropriate? 
• How are you structuring your equipment finance and are you utilising Balloons appropriately to give you more flexibility?
• Do you have a specific facility to trade livestock or is this connected to your overdraft? 

As interest rates continue to rise, your business may be in a position to pay the higher interest, however it is essential you are also able to pay for principal reductions, particularly when faced with lower commodity prices, rising input costs and the additional capital required to survive a normal season. As a result, your cashflow is critical to ensure you can meet your upcoming repayments.  

Six Tips for Re-structuring Debt and Keeping on Top of Cashflow 

• Be more cautious when structuring your debt. 
• If you’re buying equipment and you don’t normally use equipment finance, then you may consider equipment finance this year to improve your cashflow. 
• If you have a principal reduction coming up or your loan is switching to principal, then get onto this early. Be really well prepared with the right information, and don’t wait until the last minute. 
• If you don’t have a trading facility in place for livestock, consider one to capitilise on the opportunities available. 
• Don’t pay cash for equipment if you’re then going to have to extend your overdraft. 

• Get organised. In a rural property market that may not be as hot in certain areas, it could be a great time to put in place a pre-approval for those acquisitions in the future (don’t wait). 

Opportunities for livestock purchases, refinancing conversations and discussions around succession have been very topical across the SproutAg offices this month. 

Following a strong Summer and Autumn, many livestock producers are taking advantage of the falling commodity prices and enquiring about livestock finance opportunities. While there is still uncertainty in the sector about when livestock prices (particularly cattle) will reach the bottom, there are still many producers who are seeing the falling prices as an opportunity to build up heard numbers while prices are favourable. In addition to the falling commodity prices, many livestock producers are also enquiring about livestock finance as a solution to meet their working capital requirements for 2023.  

Across the Country, we’re continuing to see interest rates rise to curb inflation. As a result, our team have been facilitating a number of conversations around refinancing whole of bank loans. When comparing interest rates between banks, we’re currently seeing upwards of a 1% difference across the board. This difference is a timely reminder that having a conversation with your bank or lender about interest rates and re-financing can be of great benefit to you and your operation in the long-term. Speak with our SproutAg advisors to find out more about the refinancing options available to your operation.   

For any family farming operations, it’s important to consider and start to put in place some safe-guards and strategies within families as children in their teenage years approach the end of their schooling. With many of our clients having teenage children, the team at SproutAg have been completing a significant number of succession ready services. These services are critical to help current leaders of a family farming operation set up, lead and articulate a long-term strategic succession plan.  

Cash Flow and Instant Assets 

Following the announcement of the 2023-2024 Federal Budget, the team at SproutAg have seen an increase in ‘last minute’ equipment finance enquiries. This increase is a direct result of the changes to the instant asset write off scheme, that finishes as of June 30, 2023. The new budget now offers instant asset write off for purchases between $1,000 and $20,000. The change from the Federal Government has come about with the aim to increase cash flow in businesses turning over less than $10million. The changes as announced in the budget are no unlikely to cover many machinery purchases in the future. With an increase in interest rates, clients have been using equipment finance to assist with their working capital requirements. This year, with rising input costs and lower commodity process, it is critical that producers don’t get caught with a lack of cashflow later in the calendar year.  

Seeking out a Second Opinion on Your Banking 

In a market where interest rates are continuing to rise, spending time to analyse the true cost of your business’s finance and compare against alternative options can be difficult, however is a necessary tactic. When it comes to articulating costs and fees, each bank has their own way of approaching a conversation with their client. The language used in these conversations can often be confusing and ambiguous due to the financial jargon used. As a result, it can be hard to understand the true cost of your debt, finance or loans when comparing alternative finance options.  

At SproutAg, we offer a comparison tool that factors in every cost associated and allows our clients to develop a deeper understanding of their true cost of debt. This tool has been designed to give you more visibility, as interest rates are often a lot higher once you factor in all the associated fees.  

Every bank uses their own language when talking about interest rates and associated fees, making it confusing to understand what they’re referring to. Some of the jargon used to describe fees and interest rates across different providers may include: 

• Unused Line Fee. 
• Line Fee. 
• Facility Fee. 
• Margins (not all margins are the same). 
• Annual Fees.
• Negative margins.
• Package Fees.
• Base Rates.
• Reference rate.
• Corporate Rate 
• BBSW. 
• BBSY. 
• Higher Rate interest. 
• Different rates between facilities (different rates for term lending and overdraft lending). 
• Difference rates for various term Loans. 
• Bill Roll Over Fees. 
• Variation Fees. 
• Establishment fees. 

So, if you’re someone who’s hesitant to review your finance because it is too difficult, we encourage you to take the time and compare “apples with apples” and gain a second opinion!  

Debt Advisory Services 

At SproutAg, we know that debt is a great tool for any business to use for growth (when managed well), and based on our analysis we believe that Australian farmers don’t review their banking often enough. * Over the course of a generation, we believe that the average Australian farmer or farming business can save at lease 450k, by reviewing their financial facilities every three years, compared to a farmer or business that is not. Of course, the cost is not the only answer and part of banking that you should analyse, other equally important factors are:  

• Structure. 
• Repayment Terms. 

• Qualilty of your manager. 
• The Banks/ Providers track record. 

*Based on a $3million loan over 30 years and assuming a 0.5 reduction for the life of the loan, in comparison to a farming business that does not review their banking. 

For more information, please see our Agrifinance guide and talk to your local SproutAg adviser about our debt advisory services.