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#030 - The Real Cost Behind Farming Decisions · Dollars In The Dirt

• 0:04
  I can't watch this anymore really. This poor finance
• 0:11
  The cost of your equipment is higher, but then the resale value
• 0:15
  of the equipment you have, you're not getting crap for that to
• 0:20
  Yeah, this is a common thing guys. From
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  the person passing the farm down, you know, they want their legacy to continue, but
• 0:27
  the next generation might not want that neither. And what they want for their life is
• 0:34
  The good operators are doing this. Every year they're monitoring where their net position, you
• 0:37
  know, at the end of the day, it's your net position that matters. Hey guys, here's some
• 0:40
  videos that have come across my desk recently that I'm going to do some reactions to.
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  Some of them controversial, some of them funny. Hope you
• 0:49
  People have asked why, over 50 years of farming, you
• 0:52
  haven't saved money. Because I did save money
• 0:56
  when things turned to shit. I had to start
• 1:02
  Yeah, I think this production costs have gone up for everyone. It's really
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  important to understand your numbers and try and adapt, I think, is
• 1:09
  what we're trying to say here. If you're not adapting your business to adjust
• 1:13
  for the production costs going up, you will eventually go broke. There's
• 1:17
  no point looking in the past. You need to look to the future and see how you can
• 1:21
  get a net profit going forward by reducing your costs or finding
• 1:24
  a premium market for your product. I think it's like it's either increase your income or
• 1:27
  reduce your expenses. So, at the end of the day, that's the
• 1:32
  Why? Why? Oh,
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  A lot of people know that feeling when the expense is going out
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  and not much coming in. I think it's only to
• 1:50
  understand where your money's going is the biggest thing. And people that are across
• 1:54
  the top raters, that are across their books and they're
• 1:57
  comparing their actuals to budget every month, they'll understand
• 2:01
  where the money's going and where it's coming in. So it's
• 2:04
  a pretty funny video of what probably most people feel at times around where
• 2:09
  Farmers are going to get squeezed all the way around because the
• 2:12
  cost of your equipment is higher, but then the resale value
• 2:16
  of the equipment you have, you're not getting crap for that to
• 2:19
  trade that in. And then the value of it, obviously
• 2:23
  it's an appreciating asset, but on your balance sheet, there's a
• 2:26
  lot of guys that are upside down because they buy equipment, finance
• 2:30
  the equipment, and then the equipment is depreciating faster than what
• 2:34
  I mean, I know guys that have got... Yeah, this is a common thing guys,
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  you know, buying equipment is a big decision and understanding the
• 2:41
  difference, you know, in the depreciating assets around the timeline of
• 2:45
  the useful life of these assets and, you know, understanding how
• 2:48
  much you're going to use the asset, comparing, you know, doing the analysis between
• 2:51
  using a contractor or buying the machine yourself, you
• 2:55
  know, there's all those cost-benefit analysis that need to be weighed up
• 2:58
  and Every equipment purchase needs to really be analysed
• 3:03
  and thought through before. It's really easy to go and get the equipment financed,
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  but having to pay for it every month is where it hits
• 3:10
  your bottom line, your cash flow. So it's important to
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  understand the analysis there. All these equipment finances impact
• 3:16
  your ability to borrow money. So if the next door neighbour's property comes
• 3:20
  up for sale and you've got all this equipment on finance, You
• 3:24
  know, it significantly can reduce your borrowing capacity and you
• 3:28
  need to be really mindful around that because it's, like I say, it's easy to go get the finance for
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  the equipment but it has a massive impact on
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  your cash flow. Yeah,
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  this is interesting on first on first view, you know, you look at
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  this and you think this is a really sad statistics But the first generation shouldn't
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  really be dictating to the fourth generation what they should be
• 3:51
  doing with their lives And you know, it's probably a bit controversial to say that but you
• 3:55
  know, I think it you know, when we look at the next generation, we
• 3:58
  shouldn't be dictating to how their life's
• 4:01
  to be played out. So from the person passing the farm down,
• 4:05
  you know, they want their legacy to continue, but the next generation mightn't want
• 4:08
  that neither. And what they want for their life is different to the people before them.
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  So it's an interesting reel to look
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  at, really. If the next generation does want to take over the family farm, it's
• 4:18
  really important to have a plan early because the reason that these statistics are
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  the way they are is because often there's no plan early and often
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  when it comes to passing the property down, if there's
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  no plan early on, there's not enough asset to go around. It's hard to
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  split a cattle station up into four bits. You just can't
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  just go and sell bits and pieces of it if it's all in one big title. You
• 4:41
  know, having a succession plan is crucial and, you know,
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  if the legacy is to live on, it's important that that's thought about really early
• 4:48
  in the journey. Just quickly, if you're tired of expanding your operation to
• 4:51
  a new bank manager every year, only to get a one-size-fits-all deal
• 4:55
  that doesn't fit your business, we can help. At Season Finance, we
• 4:58
  do things differently. We've got over 70 years of combined experience
• 5:02
  in agricultural lending and we work for you, not the banks. We're
• 5:05
  the consistent expert team in your corner fighting to get the finance
• 5:09
  that actually helps you grow, purchase the next property and
• 5:12
  build your legacy. Don't leave money on the table. If you're looking at your next
• 5:15
  move or just want a second opinion on your current setup, click the link in
• 5:18
  the show notes to book a confidential, no obligation chat with the
• 5:22
  team and we'll show you what's possible. Righto guys, now back to the
• 5:25
  Minister, this afternoon the Reserve Bank Board increased interest
• 5:29
  rates by 25 basis points. How much will this rate rise increase
• 5:33
  monthly repayments for someone on an average mortgage of $600,000 and
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  I'm not here to give
• 5:43
  individual mortgages financial advice
• 5:50
  I can't watch this anymore, really. This poor
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  finance minister that we've got in Australia at the moment, she probably needs to do a few more maths
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  lessons, as the reel suggests. Interest
• 6:01
  rates going up, everyone needs to be across their numbers, as we've talked about
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  through our episodes, and hopefully we've got a bit better understanding on
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  what interest rates are doing to our business and what our finance minister does
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  for our country. You know, the good operators, the ones that have, you know, the
• 6:16
  interest rates are just part of their business and they're gonna fluctuate like
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  other rating costs in their business and being across those
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  numbers and being able to adapt and to make
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  sure you have enough buffer in your business to be able to absorb the shocks that
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  happen with rising, falling interest rates, fuel prices,
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  fertilizer prices, commodity prices, everything's changing and
• 6:37
  it's just part of running an agricultural business in Australia these days.
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  So everything just costs more now, hey? Yeah. Okay, well I'm gonna need to
• 6:43
  ask for a pay rise at work then. What? No pay
• 6:46
  rise? Well, you're not my boss. No, but I'll make debt more expensive,
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  which hurts the businesses, which makes them less likely to give you the pay rise. In
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  And because the debt's more expensive, mortgages cost more, rents go up,
• 7:01
  so people like you don't have as much money to spend on the now expensive stuff.
• 7:06
  Here we are, everything going up. Resilience in a business is really important
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  and understanding your numbers is probably the crucial thing here. This video
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  really highlights that everything's getting squeezed at the
• 7:16
  moment and being able to adapt is really important. Without
• 7:20
  knowing where your numbers are heading and what your cash flow forecast looks like,
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  it's hard to adapt and make a plan if you're not across it. It's
• 7:30
  Just put a whole bunch of equipment debt on the land. So it looks like the equipment's paid
• 7:33
  for to booster up current assets, push it all out to 25-year equipment
• 7:37
  debt. A Canadian bank, if you'll let them, will just push everything out
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  This is a common thing, and then there's Australian banks that'll do the same thing, you know, let you
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  And so like, we'll do some analysis. We did it even on our own farm. We got deeper and
• 7:52
  like, you know, five to one down on some of this debt because the
• 7:56
  land is appreciated so much. Your personal guarantee is appreciated so much. And then
• 7:59
  we've never take the time to pull stuff off. Right. That pushing equipment
• 8:02
  debt out, you can do it once, but we're seeing farms do it two, three, four times over.
• 8:06
  It's a dangerous trap to be in because those assets, their
• 8:11
  useful life might be five or 10 years, but you're still paying for them in 20 years time.
• 8:14
  So you really need to be mindful that you're matching your
• 8:17
  asset life to your payment terms. And this is the difference between
• 8:21
  the good operators and the bad ones. The not so good operators will
• 8:25
  put the finance against the land to lower the payment, but
• 8:28
  they don't realize the actual true cost of that machinery and
• 8:31
  the finance cost once you add it in will be ridiculous. you
• 8:35
  know, that probably wouldn't be worth doing if you actually work that out. So it's
• 8:42
  My net worth increased by $1.5 million last year.
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  So every year I do a net worth statement. So I take the December 31st
• 8:49
  date and I write down what's in my checkbook, what's in
• 8:52
  my savings, my grain that I have in the green bin, so stuff
• 8:59
  Yeah, this is a good practice to get into probably, you know, and
• 9:03
  the good operators are doing this. Every year they're monitoring where their net position, you
• 9:06
  know, at the end of the day, it's your net position that matters with what the point she's trying to
• 9:10
  I update my machinery list. So values of my
• 9:13
  machinery, those are my assets. I keep that in one column. And
• 9:16
  then I also have my liabilities. So that's my farm payments,
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  But the thing is though, also though, that some of these numbers can be adjusted by things
• 9:27
  that are out of your control, like property prices going up, and
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  that doesn't make you a better operator or, you know, and
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  doesn't really, it's something you shouldn't rely on, is property prices
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  going up to make your net wealth increase, because that mightn't always occur.
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  And the asset mix also can change at times. You might
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  have a lot of cattle one year and not so much cash, or in the
• 9:50
  next year you might have a lot of cash, not so much cattle. So it's good to understand where
• 9:53
  your business, your net position, if you're actually getting ahead in
• 9:57
  life. from a financial point of view by
• 10:01
  doing this regularly and at the same time every year
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  is a good practice to get into so that you can monitor that
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  consistently and see what the changes are at a time and make adjustments in
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  your business. If your debt's going up, you know, that's not such
• 10:14
  a good thing if your assets aren't increasing
• 10:18
  as well. So your net position is the key thing here. Thanks
• 10:21
  guys. Hope you enjoyed my reactions to those videos. There's some pretty
• 10:25
  good videos there and some things to think about also. So
• 10:28
  any videos that you'd like me to do a reaction for, send them through and we'll
• 10:32
  see if we can rustle up for you. Thanks for tuning in to Dollars in the Dirt. If
• 10:35
  you've got value from today's episode, make sure to subscribe so
• 10:38
  you never miss the insights you need to grow your business. And if you're ready to stop
• 10:42
  being just another number to the banks, visit Season Finance via
• 10:45
  the link in the show notes. Remember to follow us on socials and catch