Latest / Dollars In The Dirt / #032 - Full Stock From Day One or Build Slowly? I Ran The Numbers.

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#032 - Full Stock From Day One or Build Slowly? I Ran The Numbers. · Dollars In The Dirt

• 0:00
  When you buy a new property, the biggest mistake you can make isn't paying too
• 0:03
  much for the land. It's failing to fund the production. And
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  most producers think that taking on the maximum debt on day one is
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  too risky, so they slowly build their herd over time. The
• 0:13
  truth is, buying a multi-million dollar asset and leaving it half empty
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  is the fastest way to bleed your cash flow dry. After
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  helping hundreds of farmers secure over a billion dollars in finance, I
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  can tell you that the best operators, they don't fear debt. They
• 0:27
  fear unproductive assets. So in this video, I'm going to
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  break down the exact numbers between fully stocking a property on day one
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  versus building slowly, the hidden costs of running under capacity, and
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  show you how to structure the finance so you don't cripple your business. So
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  let's look at the first option. fully stocking the property from
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  the moment you take the keys. In this scenario, you've just spent
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  $5 million on the land. To fully stock it, you need to borrow an additional $1 million
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  to buy the cattle immediately. This means maximum debt, maximum
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  interest, maximum perceived risk. Most conservative operators
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  look at this nail bork. They don't want the stress of the $6 million total
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  dead load right out of the gate. They worry about what happens if
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  the season turns dry or if commodity prices take a sudden hit. But
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  let's look at the production side. Because the property is fully stocked, it's generating
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  maximum revenue from day one. Every hectare of grass has been
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  converted into beef. Yes, your interest bill is higher, but your
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  gross margin is also at absolute peak. When cattle
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  prices are strong, the revenue generated by that fully stocked
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  herd will almost outpace the additional interest cost of
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  the $1 million livestock loan. You're using the bank's money
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  to generate an immediate return rather than letting the grass go to waste. The
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  key to making the first scenario work is having the right finance structure.
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  If you don't want the $1 million livestock loan sitting
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  on your standard overdraft rate, and you certainly don't want an amortising
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  of a short term that chokes your cash flow. You need a dedicated livestock
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  facility or a structured line of credit that aligns with your sales cycle. When
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  the finance is structured correctly, the debt services itself through
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  increased production, and you reach peak profitability years
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  ahead of the conservative operator. You establish a strong cash flow
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  immediately, which makes the bank more comfortable with the overall debt
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  level. So let's run through the second scenario of building slowly. In
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  this scenario, you've still got a $5 million land debt, but
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  you can only borrow $300,000 to start the herd. Your
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  plan to retain your heifers slowly, breed your way up to full capacity.
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  On paper, this looks safer and your total debt's lower, your
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  monthly interest bill's significantly reduced. The bank manager probably
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  loves this plan because it looks conservative, minimises their exposure
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  to market fluctuations. But there's a hidden cost. You're
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  paying interest on $5 million asset that's only running at 30% capacity.
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  The grass is growing. You don't have the mouths to eat it. You're
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  essentially subsidising the property out of your own pocket or
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  from other operations. The opportunity cost of the ungrazed grass
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  is massive. Over three years, the revenue you lose by
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  running under capacity will almost exceed the interest you save
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  by keeping your debt low. You're paying for the factory, but
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  you're running on one shift. Furthermore, you're building a herd slowly,
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  exposes you to different kinds of risks. The market turning, and
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  if you spend three years breading up to full capacity and then the market crashes
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  just as you finally hit your numbers, you've absorbed all the holding costs without
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  capturing the upside. By fully stocking on day one,
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  you immediately align your production with your current market conditions, allowing
• 3:24
  you to generate cash flow, while prices are known, and
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  you take the market risk up front, but you also capture the immediate reward.
• 3:31
  Quick one, before we look at the other side of this, if you're in the process of purchasing
• 3:35
  a new property, or you want to make sure the loan is structured so you can hit
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  the ground running from day one, that's exactly where I'll help you. Book
• 3:42
  a free call and we'll work out the right structure for your deal. Free, 20 minutes,
• 3:46
  and the link's in the description. There's also the operational inefficiency to
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  consider. You have 300 head herd or 1,000 head on that property.
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  Many of your fixed costs remain exactly the same, and you still have to maintain
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  the fences, have to check the waters, pay the rates. When
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  you're running under capacity, your cost of production per kilogram of beef produced
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  skyrockets. you're spreading these costs over a
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  much smaller revenue base, which crushes the net margin. So
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  the decision between the two scenarios shouldn't be based on fear, it
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  should be based on how you structure your facilities. If you try
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  to fully stock a property using a standard overdraft, the bank will
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  likely reject it, or the interest rate will kill your margin. You
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  need a specific livestock funding facility. These
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  facilities are designed to fund the purchase of trade or breeding stock,
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  use the livestock themselves as security, and this keeps your core
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  property equity free and ensures the interest cost is directly
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  tied to the revenue-generating asset. It separates the
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  long-term land debt from the short-term working capital required to
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  run the business. As a broker, my
• 4:49
  job is to show the bank the maths. We present the cashflow projection that
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  clearly demonstrates how to fully stock the property and service
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  the high debt load better than an understocked property that
• 5:00
  serves a lower debt load. We show them the real
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  market risk isn't the extra $1 million debt. The real risk
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  is the $5 million asset sitting idle. When you structure the debt
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  correctly, you give yourself the best possible chance of
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  success from day one. and we build the narrative that
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  proves you're a sophisticated operator who understands the relationship
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  between leverage and production. It's also crucial to build a
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  flexibility into the facility. Agriculture is unpredictable and
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  you need a loan structure that allows you to draw down capital quickly when
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  cattle prices are favourable and pay down debt without penalty
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  when you sell. A rigid traditional term loan won't give
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  you that agility. You need to trade effectively. We
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  negotiate facilities that act as a tool for your business. rather than
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  a constraint. And we ensure you have a headroom to
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  make the commercial decisions without having to go back to the bank for
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  permission every time you want to buy a deck of steers. So
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  remember guys, buying land is half the battle. Funding the
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  production is what actually makes you the money. And don't let the fear of
• 6:01
  debt force you into running an unproductive asset. The most
• 6:04
  successful graziers understand that well-structured debt is
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  the fuel that drives expansion. And if you're looking at buying a
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  new block and if you want to make sure you've got the capital to fully stock it from day one,
• 6:15
  reach out to Season Finance. As a broker, this is exactly what
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  Thanks for tuning in to Dollars in the Dirt. If you've got value from today's episode,
• 6:23
  make sure to subscribe so you never miss the insights you need to grow your
• 6:27
  business. And if you're ready to stop being just another number to the banks, visit
• 6:30
  Season Finance via the link in the show notes. Remember to follow