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Tony Hudson: This is a GRDC podcast.

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Sally Maguire: Hi there, I'm Sally Maguire. For many farmers it's been a tight finish to the season due to dry conditions or frost. This makes preparing the books and finances for the year ahead more challenging. But as we'll explore in this podcast, help is available and there are practical steps you can take to get ahead. Tony Hudson is the director and founder of Hudson Facilitation. A key part of his business is private financial consulting for farmers across Australia, and he joins me now to share his advice on forward planning with reduced seasonal returns.

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Sally Maguire: Tony, take us through the first thing growers should do on the back of a tough season.

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Tony Hudson: Yeah, look, it's been a very, very tight finish across a lot of the country and always create some challenge because farmers don't end up with a level of cash income that they might have anticipated when they started the year, and it's a little bit too late to do too much about it oftentimes. So the first thing is to get a really clear picture. What does your postharvest position look like? So in terms of inventories of grain, inventories of fodder and likely cash receipts, if you've managed to harvest saleable commodities, it's really critical we get clarity around that post-harvest picture because that then becomes our starting point for the year ahead.

00:01:24:01 - 00:01:35:28

Sally Maguire: As you mentioned, Tony, it has been a tight finish for so many growers this year. What practical steps can they take to get ahead financially for next year and what are some of the flow on benefits of this process?

00:01:36:09 - 00:02:39:08

Tony Hudson: Yeah, absolutely Sally. I suppose my approach to it all is we've done what we can this year and we've got the finish we've got. We can stew over that, but we need to move forward. Essentially what we'd like to do is have a very clear picture of next year and ensure that the business is able to farm the way that it wants to farm. So despite a tight finish, that doesn't mean next year necessarily has to be a second bad year, and that we would like to set the business up to be in a position to do exactly what the farmer or the owner of the business would like to do. So obviously, clarifying the postharvest position is the important part of that - tonnage, prices and so on. And then developing a really clear, preferred production plan for 2025. It's important at this stage that we aim not to restrict next year's production where possible. So if you're thinking about cost cutting, let's not start by cutting the fertiliser bill or the chemical bill, or the seeding rate or the amount of diesel we're going to burn, all of those costs are really critical in generating maximum revenue. So if we're going to look at places to cut, maybe we leave those until we run out of other alternatives and ideally consider cost saving measures which don't impact production.

00:02:39:10 - 00:03:23:18

Tony Hudson: What's important out of all of that, and to link it back to your question, is that coming out of a challenging season, it can be a pretty stressful time. You feel like things haven't quite gone your way, you're not quite sure what the year ahead looks like, and that can lead to a reasonable amount of stress and anxiety. And what we advocate very strongly is that some of the ideas and suggestions we're going to make over the next little discussion can be really beneficial, not just in ensuring the farm goes ahead financially and is viable, but also that the farmer is managing their own level of concern, their own personal welfare, and we see a very, very close link between proactive decision making, financial health, financial comfort and confidence, and therefore also mental health, and trying to create a bit of a link between the two in this podcast.

00:03:23:22 - 00:03:44:26

Sally Maguire: Definitely, yes, it does help with that level of anxiety if you do that planning. So if you've clarified your post harvest cash and inventory position, it's not as good as you like and you are looking into options for getting extra finances. So something might be preparing for the bank. Talk us through what some of the points you'd want to think through before you head into that meeting.

00:03:45:03 - 00:06:15:19

Tony Hudson: Might sort of start at the end with all of this, the first thing if you're going to speak to the bank is remember, they've got a vested interest in your business succeeding. And if you've had a tight finish, most of your district probably have two, so they are fully expecting farmers to come forward and say, hey, we might be short of working capital next year. In the event that that's the case, there's a lot of things we can suggest that you do to try and ensure you're likely to get their support, or more likely than not. So running through our quick checklist of things to do to get prepared for the bank. Firstly, I've already said clarify your post-harvest cash position and inventory position have those numbers written down and be able to recite them. Tonnage on hand, likely price, and so on. The next is probably the most important for a bank, and that is to prepare an accurate month to month cash flow. Now, you can't be accurate if you don't know your opening balance at the start so you've got to do that first step and then go through each month and be realistic in terms of what you would assume you will spend and what income events are going to happen. I like the idea of doing it every single month on a month to month basis, because we can be a lot more accurate with our maximum overdraft requirement when we take that to month to month versus, you know, quarter to quarter, or just doing an annualised one, the picture becomes much clearer and the bank need to know what's our peak debt, when will it be and how long will it last. As part of that Sally really clear and realistic assumptions for timing, price, yield and costs that go to support the numbers in your cash flow so the days of just there's a spreadsheet, it's full of numbers, move on please bank are gone. They need really clearly expressed in terms of the timing of the cash inflows and outflows prices you're assuming both for expenses and for commodity sales and the yields you're presuming you're going to achieve. When they can then say, you know, the cash flow is low risk. It's high risk. It is what it is. I think it's also important - don't be too pessimistic in your cash flow. Coming out of a tight year oftentimes we can assume next year is going to be dreadful. Banks stress test your cash flow. They look at increasing your interest rates a bit. They look at assuming that prices go against you, production goes against you, and so on. If you approach your bank with a really conservative cash flow and then they inflict their stress on it, you might find that it makes it pretty hard for them to support you. So be genuinely realistic in terms of what you think you'll achieve and what you're likely to get paid. The other things in terms of getting ready for your bank, they're always going to want a couple of reports. So in addition to your cash flow - an updated state in a financial position. So all of your debts, all of your liabilities, all that market value not using tax value. So market value for your land, market value for your livestock and your machinery. And really clear statement of position for the bank and ideally also the most recent years financial statements.

00:06:15:21 - 00:07:05:19

Sally Maguire: They always want those, so if you know you're going to be sure to cash next year, start talking to your accountant about getting those financials drawn up and it just, again, makes it a little bit easier for the bank to say yes to you. And the last point to make is just to be on the front foot so if you have done your cash flow and you can see, you know, in your perfect plan what's doable, but we need some more money, we need some more working capital. Get to the bank early. The more time they have to look at it, discuss it with you and throw some ideas around again, the more likely they are to be able to say yes to you than if you wait until you had enough cash to get through sowing and spent some money and suddenly time as opposed to emergence or time for some urea or something, you don't have any money left that's too late to ask them. It makes it really difficult for them then to support you. So getting really early understand credit decisions take longer than they used to, and give them a chance to think things over for a reasonable period of time in order to help say yes to your request.

00:07:05:24 - 00:07:10:16

Sally Maguire: So talk us through some of the alternate levers that growers might want to look at.

00:07:10:18 - 00:11:50:05

Sally Maguire: Yeah. So look, let's say the bank is the preferred provider of credit, they typically the lowest cost. So ideally we can borrow some additional funds from them if we need it. In the event that we don't, we're then going to look at what's plan B. And if you come back to what I started the podcast talking about, what's the ideal farming year look like for you? What do you really want to do to try and drive maximum profitability? If the bank have said no and you're still confident you can do it, some of the other sources would be one to review your grain sales strategy, so have you always sold everything off the header? Maybe there's a chance to hold on to a bit longer and try and realize a higher price. Maybe the inverse of that is true. You've been someone who's always held and held and held as long as you can and then sold, hopefully for a premium, you know, sometime post harvest. Maybe bringing that forward is actually appropriate for you this year if you're going to be deeply in overdraft, remember not selling that grain might make you some more money, but it will certainly cost you some more interest. So you're going to weigh one up against the other. A second strategy there Sally can be looking at farm management deposits. So some farmers may have them, others may not. They're a taxation tool. So you put money away in a good year so you minimize your tax. This might be a good year to pull it out if you're going to make a tax loss, have a chat with your accountant, they may well advise you that it's a reasonable year to pull money out of a farm management deposit, and you could use that instead of going to the bank. Or if the bank have said no to you about more finance. Other strategies, you're getting into sort of more minutia now. So sale of livestock, sale or fodder, sale of machinery might be selling livestock if things have got really dry and you don't have enough feed in front of them to keep them going well. If you've had to bale up 2024 grain harvest instead of harvesting for grain, you've mowed it and baled it into hay what's going to happen to that? The obvious thing oftentimes is to put it in a hay shed and store it for when you need it. Maybe this is a year when it's worthwhile putting it on the market if cashflow is really tight and getting paid for it rather than storing it. So again, a deeper understanding of anyone's individual business would be required to make that call with that is certainly an option. Excess machinery. If you've got stuff parked up that's not being used and not likely to be used, put it on the market. That can be a fantastic source of cash for many farmers, and often one that you keep driving past your gear and don't necessarily look at it terribly hard and long. This might be the year where you do need to have a good look at it and say, well, okay, we haven't used that for five years now we can get rid of it. Appreciate prices might be a bit flat in a dry year, but again, better to have the cash in your pocket. And the last one again different from business to business but do you have off arm investments, you know, some shares or managed fund or whatever it might be that you could liquidate to try and ease the burden on the farm, if you haven't got your hands on cash from anywhere else. So they're all the sort of sale of asset type things, other levers we might pull - think about principal line reductions on your loans - if your bank have been asking you to make regular principal reductions, that's a terrific initiative for the bank it improves your equity. It reduces your risk. But this might not be the year to do that. So if you have an expectation, you bank want you to knock some money off your principal and your cash flow is really tight going forward, maybe have a chat with them and again, go early to the discussion and present the case for deferring those for, you know, 18 months or so because right now the most important thing you can do is farm, not reduced debt. The next point would be to identify the least cost path to your next revenue event. So if you can't do the ideal farming plan for next year, do we then look at less risky crops, which maybe don't cost as much to sow and don't cost as much to grow, and can be a lower cost and require less cash to get from the start of the year to the end of the year, they'll probably bring in less, but they might bring in something so if you can be positive that way, that might be a lower risk approach to 2025. You could also extend terms on principal and interest loans such as equipment finance. So again you need to speak to the financier on those. If you're in a two or three years into a loan, maybe you can extend it for another three or four more instead of two more. Maybe you can get a balloon put on at the end. Maybe there's ways you can get those repayments down for the next year or two to try and ease your cash flow and preserve it for production rather than debt reduction. The last one, Sally is one that many people do and some people feel quite uncomfortable with, and that is to explore alternative credit providers. So looking at maybe getting credit for your diesel, for your fertiliser, for your chemicals, those sorts of things, there's plenty of providers of those assets that are happy to provide finance to farmers. The risk is oftentimes that the facilities they provide are at a higher interest rate than your bank overdraft interest rate. So you might find a normal bank overdraft somewhere between sort of seven and a half and eight and a half per cent at the moment, because it doesn't have a lot of security to it. You're looking at sort of ten, 11, 12 per cent to get finance on next year's chemicals and fertiliser and so on. All of that said, it's a very real option for many farmers. And in the event that the bank won't provide you additional finance, you might find that as a really beneficial place to seek some additional working capital.

00:11:50:08 - 00:11:57:07

Sally Maguire: So, Tony, to wrap up, what are some of the key take home messages for growers when it comes to financial planning for the year ahead?

00:11:57:09 - 00:12:27:28

Tony Hudson: The benefit is many and varied to farmers. I look at that cash flow, that financial analysis, and monitoring it every single month is the most valuable thing you can do. Don't just do it for the bank. Treat the office as the most valuable paddock on the farm and invest some time measuring what has actually happened to what you thought was going to happen. That then, is your early warning system. If there's trouble brewing, you can see it coming much, much further away. It also provides you with opportunity. So if you can see you're not going to blow the overdraft limit. Maybe you can do something else with some of that cash and try and turn a good year into a great year if the opportunity arises.

00:12:28:00 - 00:13:51:07

You don't have to do it all yourself. So if you need some help, you can speak to your bank about doing your cash flows. You can speak to a financial counsellor. You might have a consultant or an accountant or a professional who can help you as well. Don't assume you have to do everything yourself. You can certainly outsource some of this stuff if it's difficult or you're not sure where to start. Other sort of take home messages minimizing expenditure, but don't focus on production make that your last resort and understand lastly, I think Sally the really strong link between physical health so keeping yourself eating well and getting plenty of sleep and you know, good diet, financial health so doing your cashflow, monitoring it, knowing what's coming in and what's going out and setting yourself up to be a little bit less anxious, a little bit less stressed because you've done your cash flow, you're monitoring it, you know you're going to have enough working capital to get through the year. You may well find that some of those two things stems very, very clearly into improved sort of mental health, reduced anxiety, reduce stress. And that might just set you up to get about doing what you love and a really good app, which is running the farm and growing your crops, and a little bit less sleepless nights and sort of churning your tummy as you're walking around all day wondering and worrying about it, so pretty hard to put a dollar sign next to some of those intangible benefits but I reckon a little bit of extra sleep and a bit less worry would be pretty valuable to most of us, I know I'd be prepared to pay for it. So I just think prioritise that time in the office to hopefully deliver you a greater ease of mind as you go about the day to day farming operations.

00:13:58:04 - 00:14:15:08

Sally Maguire: That was Hudson Facilitation director and founder Tony Hudson. More information on this topic can be found in the description box of this podcast or online at grdc.om.au. I'm Sally Maguire and you've been listening to a GRDC podcast.