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#057 - Every Grazier Should Ask These Questions Before Buying The Block Next Door · Dollars In The Dirt

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  The block next door is up for sale and it can feel like now or never.
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  Most producers think if the adjoining place comes up, you
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  have to find a way to buy it. After helping hundreds of farmers secure over a
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  billion dollars in finance, I can tell you that a good block doesn't
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  automatically make a good purchase if the debt and cash flow
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  don't stack up. So in this video, I'm going to walk through the practical, financial
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  and strategic questions to answer before you commit to buying the
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  neighbour. A neighbouring property can be more valuable to you than it
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  would be to someone else. The value isn't only in the hectares, grazing
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  capacity, water, improvements or location, it's also
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  how the block fits with what you already own and operate. A
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  neighbouring purchase may offer benefits such as better
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  scale and operating efficiency, more productive currentry, water
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  or current capacity, improved access between paddocks or
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  properties, reduced travel time and transport costs,
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  a more practical layout for machinery, livestock or staff, greater
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  control over biosecurity and property boundaries, and
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  potential to consolidate titles, infrastructure and operations, additional
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  room for family succession or business growth, and
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  improved long-term value of the overall holdings. A
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  smaller block next door may not stack up as a standalone enterprise,
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  but when it joins into your existing operation, it could allow
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  you to run more cattle through existing yards, use spare machinery
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  capacity, reduce cartage, or improve how
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  you rotate and manage pastures. That's where the strategic value
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  can be real. But strategic value needs to be supported by
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  cash flow, not just emotion, and history or fear of
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  missing out. By the way, if you're looking to purchase a property or
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  grow your business and want to understand what the finance could look
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  like, book a free call using the link in the description. and
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  we can look at the purchase, the timing of cash flow and how it
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  needs to be presented to the lenders. Before getting into a finance
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  discussion, you need to be clear what the purchase actually
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  adds to your operation. Ask yourself, does
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  it add productive capacity or mainly more land to manage? Will
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  it increase revenue, improve efficiency or reduce costs? And
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  does it come with water, fencing, yards, shed, housing or
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  plant that adds genuine value or will need repairs?
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  Will it improve access, reduce fragmentation or
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  strengthen the layout of the broader property? And is there underutilised
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  potential that can be realistically developed? How much
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  capital will be needed after settlement for improvements, repairs, fencing,
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  water or pasture work? And is the income from
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  the block likely to be immediate or delayed or seasonal? It's
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  important to separate the purchase price from the total capital requirement.
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  A $5 million property purchase is rarely just a $5 million decision.
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  There may also be stamp duty, legal costs, valuation fees,
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  finance costs, livestock purchases, equipment repairs,
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  water development, fencing, working capital, and the
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  cost of carrying that through the first season. So
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  the better question is, what will this acquisition cost us in total?
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  And what will we have to contribute over time? Now, for those of you have
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  had their hearts set on the net property next door, there's nothing wrong
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  with caring deeply about a neighbouring property. In regional communities, properties
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  often have family history attached to them. You may know the owners,
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  understand the country, have leased or adjusted it before, or
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  feel strongly that it should remain part of the district. But when it
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  comes to borrowing, lenders will assess the purchase with much
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  less emotion. They'll want to understand the property's market
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  value, how the purchase price compares to the valuation, whether
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  enterprise can be supported with additional debt, your
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  existing debt position, your historic and projected cash flow,
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  your equity contribution, and the strength of the security being
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  offered. the risks around seasonal and commodity prices, operating
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  costs, whether the overall business remains resilient after
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  the purchase. In other words, the lender is asking whether this
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  purchase creates a stronger business or simply a larger debt.
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  And so if you want to position yourself as best as possible, then
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  you need to be asking the exact same questions. Another key
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  conversation is how long can the existing operation service
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  the debt for the new block to get up and running. Buying
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  the neighbouring block may make sense in the long term, but
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  the business still needs to be able to manage the repayments for now, through
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  the good seasons and the more challenging ones. Lenders will assess
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  the operation's ability to service the new debt alongside existing commitments.
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  They may review historical financials, tax returns, balance sheets, cash
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  flow statements, management accounts, stock numbers, enterprise
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  budgets and forecasts. And for agricultural businesses, they
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  may also look at rainfall and seasonal history, carrying capacity or
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  production history, commodity exposure, livestock or
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  crop pricing assumptions, input costs, water security, existing
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  facilities and debt maturities, off-farm income, your succession
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  arrangements and the experience and capability of the operators.
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  The question isn't simply whether you can make repayments after a
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  strong season, it's whether the business can absorb a weak
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  year, higher interest rates, lower commodity prices or
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  an unexpected capital expense without putting the entire operation
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  under pressure. A sustainable acquisition usually
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  leaves some room for working capital, maintenance, personal living costs,
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  and the inevitable surprises that come with running a rural business. And
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  that's why, before you make an offer, you need to build
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  a full budget and not just look at the land repayments. Here's
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  how a realistic acquisition budget looks. Start with the
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  purchase price, but don't stop there. Include the purchase price, your
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  deposit or equity contribution, your stamp duty and legal costs,
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  valuation and other finance costs, existing debt
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  being refinanced or retained, fencing, water, roads and
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  infrastructure upgrades, plant, machinery or livestock required, repairs
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  and deferred maintenance, working capital requirements, your
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  interest costs and your personal and household living expenses. and
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  a buffer for seasonal or market volatility. Then
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  model a few scenarios. What does a cash flow look like in a
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  normal year? What does it look like with interest rates rising? And
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  what if land values or crop yields fall? What
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  if the new block needs more capital investment than expected? Scenario
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  planning isn't about being pessimistic. It's about making sure your
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  business is still in control if the plan doesn't unfold perfectly.
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  Once you can see the full cost, and the pressure months, you
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  can work on how the debt needs to be structured. Even
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  when a purchase makes strategic sense, the wrong finance structure
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  can create unnecessary pressure. The structure should reflect what
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  you're buying and how your business earns income. And
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  for a land purchase, finance is often structured over a long term,
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  which can align repayments with long term nature of the asset. But
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  there also needs to be shorter term needs attached to the purchase, such
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  as livestock, machinery, fencing, water infrastructure, and
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  working capital. Trying to fund every part of the acquisition through
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  one facility can sometimes leave the business with repayments that
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  are too high, too rigid, or poorly aligned with cash flow.
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  A stronger structure may separate the long-term land debt from the
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  shorter-term asset purchases and operating capital. For
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  example, the land may be funded with a long-term secured facility,
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  machinery funded over its useful life, and livestock finance
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  may be structured around a production cycle. Improvements may require their
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  own capital plan, and working capital may need a separate
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  seasonal facility. The right approach depends on the business,
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  the property available for security, and the lender's policy. But
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  the principle remains the same. Match the finance to
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  the asset and cash flow wherever possible. Now,
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  the debt structure is on one side of things. The other side is how much
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  of your own equity you're prepared to put into the deal and what that leaves
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  you afterwards. You may have equity in your existing home, farm,
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  business, or property, or other assets. That equity can
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  potentially support the purchase, reduce the loan to value ratio
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  and strengthen the overall application. But using equity
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  should still be treated carefully. Just because equity is available doesn't
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  mean every dollar should be used up. Using too much equity or
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  cross securing every asset without thinking through the long term
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  implications can reduce your flexibility later. It
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  can also make it harder to sell, restructure or transfer assets
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  as part of succession planning. When considering equity, it's
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  worth asking, how much equity are we contributing? How
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  much equity will remain after the purchase? Are
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  we tying up every asset as security? And will this
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  limit future investment or refinancing options? And
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  what happens if the values soften? And does the structure leave
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  room for succession or ownership changes later? The
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  goal isn't simply to get the deal approved. The goal is to get the business set
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  up with a structure that remains workable over time. And that's
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  where you need to be honest with yourself. A deal can look fine on paper and
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  still leave the business stretched if too much depends on everything going
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  right. You have to make sure you pay attention to these warning signs.
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  These can include the purchase only works if
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  the commodity prices remain at unusually high prices. The
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  business needs every available dollar of equity to proceed. And
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  there's no allowance for repairs, improvements or working capital.
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  And loan repayments leave little room for personal drawings or
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  household costs. Existing debt is already difficult to manage. The
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  property adds scale but not enough income or efficiency. The
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  purchase depends heavily on optimistic production assumptions. and
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  no one has considered who will operate the expanded business. The
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  buyer is relying on future sales, subdivision or refinance
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  to make the numbers work. The transaction could create pressure between
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  family members or complicate succession plans. These
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  aren't automatic deal breakers. They're just signals to slow down, test
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  the numbers and get advice before committing. The easiest way
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  to see how those pressures build is to run through this simple example.
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  Let's say you're a grazing family and the opportunity to buy the property next
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  door comes along. The block would improve access, add
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  use for grazing country, allows better use of your existing yards,
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  machinery and staff. On paper, it looks like a logical acquisition. But
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  the family also needs to spend money on fencing, water infrastructure, purchase
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  additional livestock. They're going to have to carry a higher interest cost before
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  the new land generates any income. If the analysis only considers
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  the land repayment, the deal may look comfortable. But once
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  you've included the infrastructure spend, livestock funding, working
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  capital, household drawings, the margin may become much
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  tighter. That doesn't necessarily mean you should walk away from the
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  proposal. It may mean that you need to negotiate the price, contribute
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  more equity, stage improvements over a longer period of time, adjust
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  the settlement conditions, or use a more suitable debt structure, or
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  wait until the business is in a stronger position. The best outcome isn't
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  always buying every opportunity. Sometimes the best outcome is
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  having the discipline to buy the right opportunity at the right time on
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  the terms the business can generally support. So before
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  you get caught up in the campaign, make sure you answer these key
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  questions. What strategic benefit does the purchase create?
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  What income, capacity or efficiency will it add? What
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  is the full cost beyond the purchase price? And what will the
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  repayments look like under a different interest rate scenario? Can
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  the operation service the debt in an average or poor season? And
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  how much working capital will remain after settlement? What
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  security and equity will be required? And will the structure limit
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  our flexibility later? What does this mean for successional family
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  ownership? What does it mean for the next generation? Have
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  we had the financials, cash flow and property value independently reviewed?
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  A clear answer to these questions will put you in a much stronger position whether
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  you decide to proceed, negotiate harder or let the opportunity
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  pass. And once you've got these answered, you can make the decision
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  with a clear view of the opportunity and the pressure it puts on your business. So
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  if a neighbouring property has come into the market and you're considering your options,
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  get in touch before you make an offer. We can help you see what's possible based
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  on your circumstances and then present the purchase to lenders in a way that manages
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  these risks and shows how your capacity will repay the debt. It's
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  a free call and the link's in the description. Thanks for listening and