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#052 - 5 Things Farmers Should Know About Structuring Debt · Dollars In The Dirt

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  Is your frame structure still right as you grow? Most producers think if the lines are being paid
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  and tax returns are being lodged, the structure must be fine. After helping hundreds of farmers
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  secure over $1 billion in finance, I can tell you that as business grows, the odd partnership or
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  entity set up can quietly work against you from a tax succession liability and how lender views the
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  deal. So in this video, I'm going to show you a simple way to review your structure and what you
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  can check before a big move and who needs to be in the room. The first thing I look at is the
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  current structure, not what you want it to be, what it actually is today. Who owns the land, who runs
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  the trading business, and who receives the income, and who carries the risk, and who is expected to
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  borrow next. Early on, a lot of farm business start. Very simply, there's nothing automatically wrong
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  with that. The issue is growth changes the picture. As the business gets bigger, the old structure can
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  stop fitting. It might not suit the tax position anymore, and it might not suit succession. It might
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  not suit liability. it might make the next finance deal harder to explain. That doesn't mean you
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  should rush out and change it. And this isn't tax advice. Your can is the essential advisor here.
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  What I'm saying is you should review it from a finance point of view. My role is very different. I
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  need to understand the outcome of that advice, and then I can structure the lending around it
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  because the lender needs a clear picture. They need to understand who owns the property. They
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  need to understand who is the trading entity. They need to understand who will service the debt, and
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  they need to understand who is standing behind the borrowing. If that story is clear, the finance
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  is easier to present. If that's messy, the deal can slow down. A structure that's worked when the
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  business was smaller may not work as well later, but you won't know unless you check. That's why I
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  think structure should be reviewed as the business grows. By the way, if you're looking at
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  buying a property or growing the business and want to talk through what the finance could look
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  like, book a free. Call the links in the description before you change anything? Map what
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  you already have. Keep it on one page if you can. This isn't about creating a legal document. It's
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  about getting the clear picture straight. Write down who owns what property. Write down who runs
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  the trading. Write down where the income is received and write down who currently borrows.
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  Write down who is likely to borrow next and the one page can save you a lot of confusion. It gives
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  your account a starting point and it gives your solicitor a starting point also, and it gives your
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  finance broker a starting point because everyone needs to be talking about the same business. Say
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  you want to sit down with your accountant. You want to know whether that current set up still
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  suits the business. The conversation is much easier if everything is mapped. Your can can look
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  at the tax and distributions, and your solicitor can look at the legal and succession matters, and
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  then the finance can be lined up with that outcome from my side. Once the advice is clear, I
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  can look at the finance. What that means is the lender isn't trying to piece it all together, and
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  they can see the structure, they can see the business and they can see how the debt is meant
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  to be service, and that gives them a cleaner story. It also helps with light surprises, because light
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  surprises are what causes delays, and most of them can be avoided with a proper review in a grazing
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  business. The family partnership example comes up a lot. It's where people can get caught. A
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  partnership has to distribute the income to individuals. As the business grows, that income can
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  grow to and those individuals may move into higher tax brackets. A company is taxed very
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  differently, and the answer isn't automatic. There isn't one right structure. There isn't one
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  universal turnover threshold, and there isn't a point where every farm has to change. That's why
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  the accounting is central. They can look at the actual numbers. They look and look at the tax
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  outcome, and they can explain what the options mean. That advice needs to be specific to your
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  business. Copying the neighbor isn't a plan, and the right set up for them might be the wrong for
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  you. The thing is, structure effects more than tax. It also affects succession. It affects your
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  liabilities and affects who owns what assets. It affects who is exposed to a trading risk. And
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  these legal questions belong with your solicitor. Your account and solicitor should be part of the
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  same conversation. And that's where I come in. I'm not here to tell you which structure to use. I'm
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  there to understand what your account and solicitor have advised, and then I can work
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  through the lending side of things. If the borrowing changes, the finance needs to reflect it.
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  And if the trading energy changes, the cash flow story needs to reflect that. If succession is
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  being planned, the lending needs to make sense around that. It's all connected. The next thing you
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  have to know about is structuring your debt. Is that the structure and lending go together. You
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  can't review one and ignore the other. If the structure changes, the finance may need to change
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  to. That doesn't mean there's a problem. It just means that the lending needs to match the
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  business, and the lender needs to know who the borrower is. They need to know what security
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  supports the loan, and they need to know where the repayment income comes from. They need to know who
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  is involved in the business. They need to know who was involved in the borrowing. And the main thing
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  is clarity. If the accountant recommends a change, telephone inside early. If the solicitor is
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  working through succession, tell the finance side early and if the new entity is likely to be
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  involved, tell the lender before its last minute. That gives everyone time to understand it. It also
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  gives time to prepare the finance properly, who will borrow for the next purchase, and who will
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  receive the income and who will service the debt? How does the structure support that? Those are the
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  finance questions. They're not hard questions. If you know the plan early, they become hard when
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  they appear late. The structure shouldn't be hidden. It should be explained. Here's who owns the
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  assets, here's who runs the business, and here's where the income sits. And here's how the debt
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  will be serviced. And here's why the structure makes sense. And that gives the lender something
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  clear to assess succession and growth. Some of the biggest triggers for structure review. If the
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  business is changing, the structure should be checked. That might be for properties purchase.
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  That might be before bringing the next generation in. These moments really matter because the
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  structure that suited mum and dad may not suit the next stage. It may still work, but you need to
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  know that before you make commitments. Succession brings practical questions who will own the lamb?
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  Who will run the business, and how will the income be earned? And who's going to service the debt? How
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  will the older generation be projected and how will the next generation build their position?
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  Some of these questions are accounting questions and some are finance questions. That's why the
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  right people need to be in the room. Your account is central for tax and distributions. Your
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  solicitor is needed for legal and succession matters. Your broker needs to understand the
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  outcome. Then the lending can be structured accordingly. Expansion creates similar questions.
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  If you're looking at another property, the lender needs a clear borrower. They need a clear
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  repayment source and they need to understand the business structure. They need to understand how
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  the purchase fits. So I'd rather see the review happening before the next big move. A lot of
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  people want to line the sand. They want to know the turnover number. They want to know when they
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  must change structure. And there isn't one answer. There's no universal threshold. And there's no
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  right set up for every farm. And that's why this needs a professional review. So instead of waiting
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  for a magic number, set a review rhythm. Review the structure as the business grows and review it
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  before a major purchase. Review it before succession steps are taken and review it before
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  ownership changes. Review it before new borrowing is needed. And that doesn't mean changing it every
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  time. It means asking the question properly. Is this still the right set up? Those questions
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  should be asked early. And if the answer is yes, well, good. And you can move forward with
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  confidence. If the answer is no, we have time to deal with it. And that's much better than
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  discovering the issue mid transaction from a finance point of view. Early notice helps. If I
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  know the structure I can understand the deal and if I know the accounts advice, I can align the
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  borrowing and if I know the solicitor is involved, I can then allow for succession. Legal matters.
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  Then we can present the finance properly. If that's you, start with the review, talk to your
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  accountant, bringing your solicitor where needed, and then make sure the finance follows the advice.
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  So the takeaway is straightforward as your farm business grows. The old structure may not be right
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  anymore. It might affect tax. It might affect succession and might affect liabilities, and it
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  might affect how a lender views your deal. That doesn't mean you need to change everything. It
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  means you need to review it properly. Map what you have now and take it to your accountant. Bringing
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  your solicitor where legal or succession matters are involved, and then line the finance up with
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  your advice. There's no universal threshold and there's no one right set up. The right structure
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  depends on your business, your family, and your plans. If you're looking at purchasing a property,
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  growing the business, or working through a change in your ownership, we can help you make sense of
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  the finance. We can also help you present the deal to lenders in a way that matches your structure.
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  Free call link is in the description.