Financial Planning for 2020.

Yes 2020 is nearly here and it is always said that the older we get the faster the years go by.  The years can, however, go very slowly when the debt burden is high and the lenders, usually the banks, have real pressure on the business and at the same time there are no farm sales that could clear the debt.  The days drag on and the pressure increases.

Over the years I have seen many farming businesses under financial stress and by the time they call in a consultant it is usually too late.  All the consultant can do then is “hold-their-hands” through the tough time of telling the family and working out the exit in an orderly fashion and that often requires the consultant to be the intermediary between the lender and the farmer.  Tensions run high and relationships can be fractious, that is the relationships within a family and with the lenders.

There are recent reports of lenders refusing financial support for farming businesses leaving them inoperable but still with a business to run.  In these situations the lenders are not following the normal pattern of becoming mortgagee in possession where the lender (mortgagee) must then assume the role of the farm operator.  The lender when in possession then assumes all the farm issues of compliance with health and safety, operating resource management system and animal welfare matters being the big-ticket items to contend with. The current view from the lenders seems to be to leave the responsibility with the farmer who has no operating funds and hope that the stress of looking after the business does not become too much. 

If you are experiencing financial pressure it is important to contract in a farm consultant at an early date to fully review the farm business and, if necessary, to then approach the lender before they approach you.  A detailed farm review will result in some rationalisation, the disposal of a toy or two and maybe a return to the cowshed for both mum and dad.  Batten down the hatches and tighten up the financial management with strictly adhered to budgets can work.  If any sale is to take place, you as the landowner must be in charge of the process.  Needs, wants and likes must be separated and costed.  The cost of a farm consultant can be the best money ever spent and yes they will need to be paid.

One of the tough issues we often have to deal with is when a lender acts as an advisor with glowing farm reports and budgets to establish the business and provide the necessary funding and then a couple of years later after some price fluctuations and loose financial management the same lender arrives to claim the asset and repay the debt. 

Returns for milk sales are OK to good, sheep and beef meat prices are good, but expenses are increasing and compliance costs are high.  Interest rates should be falling but the debt levels are mostly too high.  Farms are under financial pressure and a regular review process should be a priority, just don’t lie to yourself.

James Findlay.

James is a private farm consultant operating mostly in the greater Waikato region.  If you require support contact Farm Advisors NZ Ltd 027-2872886