Planning for the future? If you have a ‘winning formula’ - stick to it!

What do I mean by a "winning formula"?

It is when things are going very well, business is good, there is adequate cash flow and debt is being serviced. Everything is running smoothly then suddenly you see an opportunity to expand the existing business. This may of course be the right thing to do, but sometimes it's not.

In these instances, it's really important that you get the right advice, particularly if you are considering leasing or buying the neighbouring property. It might have been practical when the payout was at $5.20/kg, but is it still a viable proposition at $3.80/kg. Such queries need to be considered objectively, bearing in mind the 80/20 rule. Most people base their decisions 80% on emotion and 20% on logic. Seek professional advice and get these percentages the right way round at 80% logic and 20% emotion!

Another area of confusion is that of business failure. We have seen cases where farmers with moderate debt have been going really well. Suddenly a family member comes into the business, or the farmer acts as guarantor in some business venture, things go pear-shaped and then the family farming business is put at risk.

If someone in your family needs financial help, it is crucial to borrow the money against your existing farm and then, lend the required amount to the individual rather than collaterally securing the debt. If you wish to help a family member, it is vital to help them in this way.

Let me elaborate.

Someone in your family wants $100,000 to enter into a business venture. Don't arrange finance with the Bank secured against your farm. A better idea is go to the Bank, borrow $100,000, lend it to the family member and then have a Deed of Debt drawn up stating that the borrower owes you $100,000. The key point here is that if the business is unsuccessful, your only liability is the $100,000. If you have arranged collateral security, then you will be liable for everything. You can have a simple loan agreement. This limits your liability to them and their failure will not take you down.

If you decide to enter into another venture or borrow money for other purposes, arrange a meeting between yourself, your solicitor, accountant and an adviser such as myself to discuss the issues. Consider the upside, but more importantly consider the downside because that is what could be your downfall. I'm certainly not against investing and expanding, but it needs to be done properly with adequate controls, checks and balances in place to protect your existing farming business.

Back every decision you make with an opportunity to get a second opinion. I have an excellent arrangement with my Trustee and Accountant. I can make a quick decision but always tell people that I have to run it past my Trustee first. Now, if for some reason I had decided wrongly or in haste my trustee can be the 'Bad Cop'. It works a treat, but more than that, I now realise how valuable that second opinion is.


If things are going well, stick to them. As we get older, we are often keen to make yet another big investment decision 'before it's too late'. Tread carefully and take good advice. It will be very cheap in the long run. Use your bad cop to help you make correct decisions rather than one based on impulse and emotion.

Take calculated risks. This quite different from being rash. George S Patton - 1885 - 1945


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