Latest / Dollars In The Dirt / #051 - Before You Change Enterprise, Watch This

Transcript

#051 - Before You Change Enterprise, Watch This · Dollars In The Dirt

• 0:00
  Before you change your enterprise, watch this. Most producers think
• 0:03
  the safest way to grow is to chase the commodity with the best price right
• 0:07
  now. After helping hundreds of farmers secure over a billion dollars in
• 0:10
  finance, I can tell you that under some circumstances, this
• 0:13
  makes total sense. But for others, it could be a big mistake. So
• 0:17
  in this video, I'm going to run the scenario and show you the factors you
• 0:20
  need to consider before you commit your business and your capital to a switch. The
• 0:24
  first thing I'd look at is the country fit. Does the land actually suit
• 0:28
  the enterprise? Then I'd look at your gross margin, not profit
• 0:31
  after everything. Gross margin is before overheads. Because
• 0:35
  the thing is, a lot of overheads stay there anyway. So
• 0:39
  the real comparison is before those shared costs. What
• 0:42
  does each enterprise make and what does cattle make on that country? And
• 0:46
  what would sheep make on the same country, and what would goats make on the same
• 0:49
  country? That's the comparison you need when comparing enterprises.
• 0:54
  The headline price might look attractive, but that doesn't mean
• 0:57
  your country is right for it. The land has to support the plan.
• 1:02
  And if the country is wrong, the margin can disappear very
• 1:05
  quickly. But the cost of making it work can creep
• 1:08
  up, and that's where people get caught. They look at the sale price,
• 1:12
  and they don't look hard enough at the gross margin. The gross margin
• 1:16
  is where this starts. What income can the enterprise generate,
• 1:20
  and what direct costs sit against it, and what is left before
• 1:23
  overheads? Then compare that against the current enterprise, and
• 1:27
  that gives you a cleaner view. The numbers have to work, and
• 1:30
  the country has to back them up. So if that's you, start
• 1:34
  with a proper comparison. Put each enterprise side by side
• 1:38
  and look at what they make before overheads. Then ask the
• 1:41
  harder questions. Which enterprise is the most productive
• 1:45
  for that land? And that's where the plan needs to start. Start
• 1:48
  with your country. Start with your gross margin, then build the
• 1:51
  rest from there. By the way, if you're looking at buying a property or
• 1:55
  growing the business and want to talk through what the finance could look like, book
• 1:58
  a free call. The link's in the description. The next thing is the
• 2:01
  full cost. Changing enterprise isn't just buying different livestock.
• 2:06
  That's where a lot of budgets fall short. They price the animals, but
• 2:09
  they don't price the whole switch. You need to think through the full
• 2:13
  changeover. Livestock is one part. Fencing is another
• 2:16
  part. Handling facilities is another part. Freight is
• 2:20
  another part. And access to markets is another part. Then
• 2:24
  there's the time. The time before the new enterprise becomes productive.
• 2:29
  All of this matters. That all costs money and most of
• 2:32
  these costs arrive early. They usually arrive before the
• 2:35
  income does and that's the pressure point. The business has
• 2:38
  to carry the transition and that means the cash flow needs to
• 2:42
  be honest, not best case, not just the final result.
• 2:46
  The changeover period needs to be mapped out. What
• 2:49
  do you need to buy? What do you need to build? And what needs
• 2:53
  upgrading? And what needs changing? How long until
• 2:56
  the enterprise is producing properly? How long until
• 2:59
  the income starts coming back? None of that means don't
• 3:03
  do it. It just means price it all first. If
• 3:06
  you don't price the full change, the numbers can look better than they really
• 3:10
  are. But the capital required can eat into the benefit. or
• 3:14
  the timing can create a cash flow hole. And that's why
• 3:17
  the full changeover cost matters. The next thing is timing. A
• 3:21
  premium today may not be there later. You can decide to
• 3:24
  change enterprises today, but the market doesn't wait for you. You
• 3:27
  still have to buy the stock. You still have to set up the infrastructure. And
• 3:32
  you still have to get the enterprise up and running. And you still have to
• 3:35
  become productive. Then you have to bring the product to the market. By
• 3:39
  that time, the premium might have changed. And that's
• 3:42
  the risk. We saw this with goats. The goat market had
• 3:45
  a strong premium. A lot of people moved into them. Then supply
• 3:49
  increased, oversupply came through, and the
• 3:52
  price collapsed. That caught people. And
• 3:56
  that's the lesson. Don't make the decision on the
• 3:59
  premium alone. Make it on a fit, cost, and
• 4:03
  timing. Because if the premiums disappear, what's left? Does
• 4:06
  the enterprise still suit the country? And does the gross margin still
• 4:10
  stack up? And can the business still handle the debt? And
• 4:14
  can the cash flow still work? What will demand look like when
• 4:18
  you're ready to sell? Not today, but when you're ready. And
• 4:21
  if the setup takes time, include that. If building numbers takes
• 4:25
  time, include that. And if getting the product to market takes time,
• 4:29
  include that. Then ask whether the market still makes sense.
• 4:33
  The point is to avoid building a plan that only works at the top. The
• 4:37
  next part is cash flow, and this is where good ideas get tested. Changing
• 4:41
  enterprise takes time, and the business has to live through that period.
• 4:45
  You may be spending money before income arrives, and you may be waiting
• 4:48
  for the new enterprise to produce, and that creates a gap. And
• 4:52
  that gap, well, it needs funding, and it needs to be planned early.
• 4:55
  But what happens in year one? What happens while the change is
• 4:59
  being made? What happens before the enterprise reaches normal production? That's
• 5:03
  where the cash flow matters. You need to know when the money leaves,
• 5:07
  you need to know when the money comes back, and you need to know what happens in
• 5:10
  between. That includes the cost of change, because
• 5:14
  the rest of the property doesn't stop. So the transition has
• 5:17
  to fit inside the whole business, not just inside the new enterprise budget.
• 5:22
  So before you commit capital, map the gap. How long before the
• 5:25
  enterprise pays its way, and how much cash is needed before then?
• 5:28
  What costs are fixed, and what costs are linked to the change? What
• 5:33
  happens if the premium is lower? And what happens if production takes
• 5:36
  longer? If the answers still stack up, well, that's a good sign. And
• 5:40
  if they don't, you found the problem early. And
• 5:43
  finding it early is much cheaper. There's another side to this. And
• 5:47
  you don't want to chase every premium. But you also don't
• 5:50
  want to stay stuck. A traditional family enterprise can
• 5:54
  get comfortable because it's what the place has
• 5:57
  always done and that doesn't mean it's always the best
• 6:00
  fit. The business changes, markets change, labour
• 6:04
  forces change and access to markets change. The
• 6:08
  next generation may have different goals and the property itself
• 6:12
  may suit something better. So, the risk goes both
• 6:15
  ways. There's risk in changing too quickly, and there's also risk
• 6:19
  in refusing to change. That's the balance. The
• 6:22
  question isn't, should I change because prices are up? The question
• 6:25
  is, does the enterprise fit my business better? Does
• 6:29
  it fit my country better? Does it produce a better gross margin? And
• 6:32
  can I afford the changeover? Can I handle the time before it becomes productive?
• 6:37
  Can the business survive if the premium comes back? That's the
• 6:40
  test. And if the answer is yes, changing can make sense. If
• 6:44
  the answer's no, it may be just chasing price. And
• 6:47
  chasing price can get expensive. Fit, margin,
• 6:51
  cost, timing, cash flow. That's the framework.
• 6:55
  And it needs to be specific to your place. So don't copy
• 6:59
  blindly. Test your own position. That's what gives you the
• 7:02
  better answer. If finance is involved, the lender story
• 7:05
  matters. It can't just be a sales pitch. It has
• 7:08
  to have a proper explanation. What are you changing? Why does this
• 7:12
  fit your country better? What does the gross margin show? And
• 7:15
  how long until it becomes productive? What happens if the premium reduces?
• 7:20
  These questions need to be answered. And if you can't answer them, the
• 7:23
  lender will struggle. And honestly, you should struggle with it too.
• 7:27
  Because if the plan can't be explained, it probably isn't ready. Because
• 7:30
  the funders are looking at repayment capacity, They need to understand where
• 7:34
  the income is going to come from, and they need to understand how reliable that
• 7:38
  income is. They need to understand the transition. If
• 7:42
  you're changing enterprise, there's movement in the business. And
• 7:45
  that doesn't make it bad, it just means it needs explanation. At
• 7:49
  Season Finance, We can help you understand the position. We can help
• 7:52
  you forecast your cash flow and help you structure the funding.
• 7:56
  We can also help you prepare a lender pack and help deal with the funders early.
• 7:59
  That way, the finance discussion matches the business plan and lenders
• 8:03
  can see how the switch works. That's a stronger position to be
• 8:06
  in. So before you change enterprise, slide down, not forever,
• 8:10
  just long enough to test it properly. Start with your country, then
• 8:14
  look at your gross margin, then price the full change, then
• 8:17
  test the market timing. Map your cash flow and
• 8:20
  then think about the risks both ways. The risk of
• 8:24
  changing too fast and the risk of staying stuck too long. Premium
• 8:28
  markets can create real opportunity. A different enterprise can
• 8:32
  suit a property better. A change can help a business grow,
• 8:36
  but it needs to be done with eyes wide open. Because
• 8:39
  the cost is real, the market can move, and the
• 8:42
  business has to fund the gap. If the change stacks up after
• 8:46
  that, it's stronger. If it doesn't stack up, that's not a failure.
• 8:50
  That's a good result too. You're avoiding putting capital into
• 8:54
  the wrong move. You've protected the business. So if you're looking
• 8:57
  at switching, write it down. Put the numbers beside it,
• 9:01
  and be honest about the setup costs, be honest about the time, and
• 9:04
  be honest about what happens if that premium is gone, and then make the call.
• 9:08
  That's a much better way to change enterprise. Changing enterprise
• 9:12
  isn't automatically good or bad. It depends on the fit, margin, cost
• 9:15
  and timing. The goat market is a good reminder. A strong premium
• 9:19
  pulled people in and then oversupply hit. The price
• 9:22
  collapsed. And that caught people who only budgeted on
• 9:26
  the premium. But that's not the whole story. We've also seen
• 9:29
  clients do very well. Some have moved into Dorpers or other premium
• 9:33
  markets. And the difference was the fit. The country suited the
• 9:36
  enterprise and the numbers worked. The changeover made sense.
• 9:40
  The market made sense. And the cash flow could carry the transition. That's
• 9:44
  what you're looking for. If you want to help testing the plan from a finance point
• 9:47
  of view, that's our lane. We can work through the cash flow, we
• 9:51
  can look at the funding structure and we can help you prepare a
• 9:54
  lender's pack. If you're looking at a property purchase or expansion, book