Latest / Dollars In The Dirt / #028 - Stop Letting Your Bank Build Your Farm Budget

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#028 - Stop Letting Your Bank Build Your Farm Budget · Dollars In The Dirt

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  The single biggest mistake farmers make with their operating costs is treating
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  diesel just like their other monthly bills. Most
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  producers think that because the fuel prices fluctuate, they just have
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  to wear the cost and hope for a drop. The truth is, when diesel becomes
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  a major structural pressure on your cash flow, it needs to
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  be actively managed, just like interest rates or rainfall. 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 don't just absorb high input
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  costs, they restructure their working capital to absorb the
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  shock. So in this video, I'm going to show you the
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  exact four-step strategy to restructure your finance, free
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  up cash flow, and manage volatile input costs without
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  crippling your business. The first thing you need to understand is
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  that when a bank builds your budget, there's a massive conflict of
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  interest. Your bank manager might be a great person, but
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  their KPIs are based on risk minimisation and
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  loan security. Your goal as a business owner are based on
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  growth, timing and opportunity. These two
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  things are often completely at odds when the bank builds
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  your budget. They're building a compliance budget. They'll
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  use conservative commodity prices, they'll overestimate your expenses, and
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  they'll stress test the numbers until there's zero room for error. They
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  want to ensure that even the worst case scenario, they get their interest payments.
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  But you don't run a business to survive the worst case scenario. You
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  run a business to capitalise on your best opportunities. And
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  if your budget is built purely on conservative assumptions, it's
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  artificially limiting your borrowing capacity. I'll make your business look
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  less viable than it actually is. You're essentially letting
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  the bank put a speed limit on your growth before you've even started the
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  year. You've got to take control of your numbers so they reflect the
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  true performance and potential of your operation. This conflict of
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  interest becomes glaringly obvious. when you want
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  to make a strategic purchase. Let's say a neighbouring block come up and
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  your budget was built by the bank. It's likely to
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  be so conservative that it shows you don't have the serviceability to
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  take on the new debt. But if you had to build a strategic growth
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  budget that accurately reflected your true carrying capacity and
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  realistic commodity prices, the deal would stack up easily. By
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  outsourcing your budgeting to your lender, you're giving them the
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  power to say no before you've even asked the question. Quick one,
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  before we keep going, if you're looking at purchasing a new property or expanding
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  your operation and you wanna know exactly what your borrowing capacity
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  is, that's what I do. Book a free call with me and we'll work out
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  your loan structure that makes sense for your situation. No
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  cost, takes less than 20 minutes, and the link's in the description. The
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  second major issue that your bank staff, the second major issue is
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  that bank staff often don't understand the operational reality of
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  your specific farm. They're looking at spreadsheets, not
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  at paddocks. And they might not understand your livestock production
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  cycles, like exactly when your cattle are going to be market ready. They
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  might not grasp the seasonal conditions and variability that
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  dictates your cash flow. If
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  a bank is just guessing when things are going to happen or applying a
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  generic regional average to your specific property, The
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  timing of your cash flow will be completely wrong. And in farming,
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  timing is everything. I've seen bank budgets that assume a producer is
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  going to sell their cattle. I've seen bank budgets that assume a
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  producer is going to sell their entire calf drop in May, completely
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  ignoring the fact that this specific producer background
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  their cattle and sells them as heavy feeders in October. That
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  five-month gap in the cash flow projection makes the business
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  look like it's bleeding money, when in reality it's
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  just executing a highly profitable long-term strategy. When
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  a bank gets the timing wrong, they'll often force you into an inappropriate overdraft
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  facility that costs you thousands in unnecessary interest.
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  Furthermore, banks often fail to account for the strategic investment
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  you have
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  made to mitigate the risk. If you have spent $200,000 in a water infrastructure
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  upgrade to drought-proof your property, your carrying capacity is
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  fundamentally different from the regional average. But a
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  bank-specific generic spreadsheet won't capture that nuance. It'll
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  treat you like every other farmer in the district, penalising you for the risks
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  you've already engineered out of the business. So what's the alternative? You
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  need to build a strategic growth budget. This is a budget built
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  for you, your accountant and your broker, not
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  your lender. A strategic growth budget uses realistic,
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  evidence-based commodity prices. It accurately maps out
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  the specific production cycle so that the cash flow timing is
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  spot on. And it accounts for the investments you've made in infrastructure and
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  genetics. It tells the true story of your business potential, rather
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  than just painting a picture of risk minimisation. And
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  when you take a strategic growth budget to the bank, the dynamic changes
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  completely. You're no longer asking them to tell you,
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  what can I afford? You're telling them what
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  you're going to do and asking them to provide the capital to make it happen.
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  You move from a position of compliance to a position of strength and
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  you dictate the terms, you demonstrate your financial literacy and
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  you force the banks to compete for your business based on the true strength of
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  the operation. A strategic budget also allows you to
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  run multiple scenarios. You can model what happens if
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  the cattle price drops 10% or if interest rates go up
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  by 1%. By doing this modelling yourself, you can proactively
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  show the bank that you already consider the risks and have a
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  plan to manage them. This level of preparation is exactly what
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  a credit department wants to see. And it's the key to getting the
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  complex, high-value deals approved quickly. So remember, guys,
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  your budget is the financial blueprint for your entire year. And
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  if you let the bank draw the blueprint, You're going to build a fortress for
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  themselves, not a growth engine for you. Take control of
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  your numbers, build a strategic growth budget, and use it
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  to negotiate from a position of strength. If
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  you need help translating your farm's true potential into a finance proposal
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  that a bank will actually approve, reach out to Season Finance. As
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  a broker, this is exactly what I do for my clients, and I look forward to
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  catching you in the next episode. We recently had an example of a customer that
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  come to us with a budget that was prepared by Q Rider and
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  the client and that was a very conservative budget and
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  what it meant was that that budget was being used then with a commercial bank
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  to try and get the money approved in conjunction with a Q Rider facility and
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  the difference that this meant was that the clients weren't actually
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  able to borrow the money that they're looking for from a
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  commercial bank because the Q Rider budget was that conservative that
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  it didn't show complete viability of the operation and the
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  true picture of where the business was heading and what the clients wanted to do was sort of
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  It didn't really reflect the business at all and the clients came to
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  us, we rejigged the whole budget to be more of an accurate picture
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  of where the business was heading, what they wanted to do with the property, how
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  many stock they wanted to purchase and that then gave them
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  the ability, you know, we repackaged it, represented it
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  and it was fundamentally approved in the end
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  and the customers bought the property. If they just relied
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  on that Q Rider budget that was originally presented, they wouldn't have
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  been able to buy the property, but by actually redoing
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  it and showing a true reflection of
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  the business, made a massive difference for their ability