The fortunes of farming come and go in cycles of weather, market prices and interest rates, but according to agribusiness consultant Peter Whip, graziers are in the box seat to reap rewards.
He and Allegiant Financial Services’ Peter Winterflood discussed ways of positioning businesses to take advantage of favourable livestock prices and interest rates when they presented workshops at Corfield and Stonehenge recently.
“Many people don’t realise how much the way they approach and manage their finance can influence lending approvals and pricing” Mr Winterflood said. “The keys to exerting that influence include being proactive, knowing your business and having a well prepared plausible plan including detailed projections.”
Graziers who know the trends in their business performance for factors such as equity percentage, interest cover ratio (ICR) and return on assets managed (ROAM) are able to have clear conversations with financiers about where their business is headed and what it needs to get there.
“We estimate that this drought has cost most businesses in the central west upwards of $500,000, so being able to present a plan for how the business performance is going to improve is crucial, if you want the best finance structure.” Peter Whip said.
The GFC ushered in a new era in Australian banking with the heightened presence of APRA and the introduction of mandatory risk grading, which now underpins all decisions made by Australian banks in agricultural lending.
It has several elements, including financial performance of the operation before interest, and measures of the borrower’s management skill and behaviors.
An established, conscientious client who maintains their account limits and provides payments and data on time will generally achieve a better risk grade according to Mr Winterflood. “The better the risk grade the more flexibility the bank has in lending and pricing decisions”.
For this reason Peter Winterflood cautioned graziers to think very carefully about switching banks.
“Changing banks can be quite a drawn out process and you may be disadvantaged if your new financier doesn’t know you or your business. This can make organising additional funds for stock at the same time a real challenge.”
A highlight of the day was a case study session that demonstrated how a grazier had funded restocking without increasing his interest costs.
Despite drought expenses and equity issues dragging on business performance he had still been able to negotiate interest savings and leverage those savings further by utilising facilities such as the QRAA drought concessional loan.
“This is a plausible scenario for many businesses in the central west,”Peter Whip said. “We get quotes on steel and supplement purchases, or we’ll spend a week researching the purchase of a truck, but very few research the pricing of finance, yet interest is the biggest single expense in many businesses.
“We have had downward pressure on interest rates for a few years now so making sure your finance is well structured and priced at the current market rates is good business management.”
The seminar was a Pastoral Profit activity supported by Suncare, QRAA and the Agforce Community Drought Support project.
The Pastoral Profit program is working to deliver professional development opportunities to graziers in south west and central western Queensland through to 2017.
With a focus on making effective business decisions the program will offer access to regional activities that deliver information and training to support graziers in growing their businesses.
For more information contact the Queensland Pastoral Profit Coordinator Heather Smith on 0428 712 985 or at pastoralprofitqld@gmail.com
