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#037 - Most Graziers Don't Realise How Brokers Can Help · Dollars In The Dirt

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What is the most common reason farm succession fails? It's
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not what you think. Most producers think succession fails because
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kids can't agree or because parents refuse to let go of the checkbook. The
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truth is succession usually fails because the business structure
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and the finance were never set up to support a handover in the first
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place. After helping hundreds of farmers secure over a billion dollars
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in finance, I can tell you that a smooth succession isn't
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just about communication, it's about capital. So in this video, I'm
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going to bust the most common myths in farm finance, explain
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why succession really fails, and show you how a
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broker can help you structure your debt to save the family farm.
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The first myth we need to bust is the idea of
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a fair split. When parents start thinking about succession, their
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default position is often that they want to treat all the kids equally.
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If there are three kids and only one wants to stay on the farm, and they
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try to figure out how to divide the asset values in three. They
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look at the farm, which might be worth $12 million, and they need
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to find $8 million in cash to pay out two of the three children.
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And this is where the succession plan instantly collapses. The
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farming child can't service an $8 million debt to buy out their
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siblings and the business will be crushed under the interest and
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finance repayments. The parents realise this and the conversation
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stalls. The succession plan gets thrown into the too hard
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basket for another five years. And let's put that in perspective. Imagine
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cattle operation in northern New South Wales running 1,000 breeders, and
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the parents have built this herd over a decade. And now one of their three childrens
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are keen to take over. The other two have careers in town, but
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they want their share. And the farm is prime grazing country, but
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the working capital required to keep those cattle thriving is significant. And
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the farming child is staring down the barrel of servicing a massive loan
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just to buy out their other siblings. Even with a good season, the
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cash flow is tight and suddenly the dream of a smooth handover looks
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impossible. The reality is that fair doesn't always mean equal.
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A farming business is an active, capital-intensive enterprise.
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And the child who stays on the farm is taking all the operational risk,
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the weather risk and the market risk. and they're the ones who'll
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be at dawn checking fences, making decisions about feed, managing
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the season variability, and shouldering the stress when markets
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shift or drought hits. A broker helps you look at the business not
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just as a lump sum of equity, but as a cash flow generating equity.
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For example, we might examine the property's income streams like
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grazing leases, cropping rotations, potentially agritourism ventures.
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We factor all those incomes into the financial structuring. We help you
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structure the finance so the child, they can take over the operational asset
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while using the strategic debt to provide a manageable, structured payout
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to the off-farm siblings over time, rather than crippling a
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lump sum in one day. We've seen cases where as a broker, we've
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worked with families across Australia, you know, mixed farming family. that
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set up a staggered buyout plan. Instead of expecting the farming child
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to find a lump sum, the plan used a combination of
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long-term loans, income from off-farm investments that the
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parents held. The off-farm children were paid out gradually over
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a decade, allowing the farming child to build equitably, steadily,
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without being buried in the debt. Breaking down the value of
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the farm into operational assets versus investment assets
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is critical. A broker's job is to help you understand What's a
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fair split? Means balancing financial realities with
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family dynamics. It's about fairness over time, not fairness
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on signing day. That mindset shift alone can save a
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succession plan from collapse. The second myth is that
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your long-term bank will automatically support your succession plan.
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Many older producers have been with the same bank for 30 years.
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They assume that because they've never missed a payment, the
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bank will be happily roll the debt over to the next generation. But when
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the parents actually go to the bank and start the handover, they
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can often get a rude shock. The bank doesn't look at 30 years of
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loyalty. They look at the serviceability of the 30-year-old child
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taking over the loan. The child might not have the track record, off-farm
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income, or the equity position that the parents had. And the bank's
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credit department might suddenly demand higher interest rates, tighter covenants, or
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refuse to fund the buyout of the siblings entirely. I've seen
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this happen firsthand with a cattle operation in Queensland. The
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father had a longstanding relationship with a major bank. He just assumed that
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the transition would be seamless. But when the son
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approached the bank for financing to buy the siblings out, the bank's
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credit team flagged concerns. The son had
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just started managing the property and had limited off-farm income.
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In the end, they required a larger deposit, a guarantor, and they
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weren't willing to extend the loan the same terms as what they'd done
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with the father. The father was stunned. The bank he'd trusted for decades
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suddenly wasn't willing to support the next generation. And this is
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where most grocers don't realize how a broker can help. We
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don't rely on loyalty, we rely on leverage. And
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if your current bank won't support the next generation, we take
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the deal to a bank that will. Australia has a range of lenders, including
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regional banks, credit unions, specialist ag lenders, many
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of whom understand the nuances of farm succession better than
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the bigger banks. We know which lenders have specific policies designed
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to support intergenerational family transfers. For
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instance, some lenders offer succession-friendly products with interest-only
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periods, flexible covenants, also the ability to
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use livestock as security, and something many traditional banks
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overlook. We help the younger generation present a professional, forward-looking
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business plan that proves their management capability to
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the new lender, ensuring that succession isn't blocked by
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a conservative credit assessor. And this might include a detailed
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cash flow forecast, herd productivity benchmarks, even
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third-party advice from an agronomist or a vet to
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demonstrate the farm's viability under the new management. Another
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massive myth that destroys succession plans is
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obsession with its cheapest interest rate. When the younger generation
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starts looking at taking over debt, they often jump online, look
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at headline rates, that are advertised by the major banks, and
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they build their entire succession budget around a
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rate that's half a percent cheaper than what their parents are currently paying.
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And they think that securing the cheap rate is the key to making the buy-out affordable. But
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here's the reality check. The cheapest rate almost always
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comes with the tighter conditions, and the bank offering the rock-bottom rate
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might require an annual revaluation of their property at
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your own expense. They might demand that you maintain a
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loan-to-value ratio that gives you absolutely no room to move and
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they might refuse to lend against livestock, forcing you to tie up all your working
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capital. I recall a family in Victoria who went
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down this path and the younger brother was fixated on getting the
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lowest rate possible and signed up with a lender that required an annual property
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valuation costing thousands of dollars each time. In
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a bad season, the extra costs combined with the rigid loan covenants put
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serious strain on their cash flow and it wasn't long before they're looking for
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a way out of that loan. In a succession scenario, flexibility
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is far more valuable than a fraction of a percent on an interest rate.
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You need a lender who understands that the first five years of
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a handover are going to be tight, and you need a facility that
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allows you to miss a principal payment if the season turns drier, without
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triggering default. This might include interest-only period, seasonal
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redraw facility, or the ability to restructure the terms without
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penalty. A broker helps you look past the headline rate and negotiate terms,
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the covenants, and the flexibility that'll actually allow the
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business to survive the transition. we find the
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right money, not just the cheap money. If you're starting to think
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about succession and you wanna know if your current debt structure will
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actually allow you to hand over the farm, that's
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exactly that I help with. Book a free call with me and
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we'll review your setup. Free call link in the description. The
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final myth is that you should wait until you're ready to retire before
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you sort out your finance. Succession isn't an event, it's
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a process. And if you wait until you're 70 years old to start restructuring your
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debt, you've left it too late. You've lost the runway needed
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to build off-farm assets, pay down the core debt, or
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establish the younger generation's credit history. A
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broker helps you start this process 5 or 10 years
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in advance. We might help you release equity now to buy a
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commercial investment property. The property generates passive income
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for your retirement, meaning the farm doesn't have to support you
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and the next generation simultaneously. you might
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help the younger generation secure a small facility to buy their own
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herd of cattle, allowing them to build their own balance sheet while still
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working in the family operation. For example, I worked with a family in
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southern Queensland where the parents wanted to retire in 10 years. We
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helped them refinance part of their farm to buy a unit in Brisbane
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that rented out, providing a steady income to support their retirement, while
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the son secured a loan to buy 200 head of cattle and start building his
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own herd. When the actual handover happened, the son wasn't just
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an operator. He had assets, a credit history, a proven ability
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to manage debt, and that made the bank far more comfortable with
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the transition, and it was a lot smoother. By the time the
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actual handover happens, the financial structure is already in
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place, and the retiring parents have their income stream, the
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farming child has their proven credit history, and the debt's structured
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to allow the business to continue operating profitably. Waiting until you're
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ready can also mean you miss out on government grants or incentives
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designed to support succession for younger farmers. Some states
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offer concessional loans or grants that require early application. So
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starting early lets you take advantage of these opportunities. Finally,
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we need to talk about the myth of the one size fits all loan product. When
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families try to manage succession on their own, They often just
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ask the bank to increase their overdraft or term loan to cover their
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buyout. They try to jam a complex, multi-generational transaction
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into a basic lending product. And this is a recipe for disaster. A
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standard term loan is rigid. It demands regular principal interest payments
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regardless of whether you're in the middle of a drought or rebuilding your
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breeder herd. A broker understands that the succession requires a bespoke
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financial architecture. We might use a combination of interest-only
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periods to give the next generation breathing room in the first
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five years. And we might structure a seasonal overdraft that
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expands and contracts with the cycle of the cash flow. We might even
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look at alternative funding sources like private credit, specialised agricultural
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funds if the traditional banks are being too conservative. I
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recently had a cattle operation in Western Australia that was able to access a
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private agri-credit fund through a broker and this
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fund provided flexible repayment options linked to seasonal income
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which traditional banks wouldn't offer. This flexibility allowed
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the next generation to manage their cash flow around the unpredictable nature
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of the cattle sales and the drought impacts. We just don't accept the
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product the bank hands us. We design the facility that the business
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actually needs to survive the transition. And this might mean combining
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multiple loan products, a long-term loan for land, a seasonal working
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capital facility, a line of credit for livestock, all
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tailored to the farm's unique cash flow and risk profile. In
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short, succession finance isn't about pushing a square peg
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into a round hole. It's about building a financial structure that
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reflects the realities of farming, family dynamics and
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the market environment. and that's where a broker adds real
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value. So remember guys, succession fails when
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the finance doesn't match the family goals. Don't let
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a bad debt structure destroy your legacy. Start planning early,
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bust the myths and get the right advice. If you need help
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structuring your finance to ensure a smooth handover to the
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next generation, Reach out to Season Finance. As
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a broker, this is exactly what I do for my clients. And
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we'll see you in the next episode. Thanks for tuning in to Dollars in the Dirt. If
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you've got value from today's episode, make sure to subscribe so
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you never miss the insights you need to grow your business. And if you're ready to stop
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being just another number to the banks, visit Season Finance via
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the link in the show notes. Remember to follow us on socials and catch