This post follows on from the excellent post by Steve Truman – Australian Farmers Finance Alert in Supporting Food and Fibre Producers Group. I mentioned there that I already had this discussion almost written and here it is.
St Botolph said that across Australia, many farmers are in dire financial straits because of the debt burdens they carry, and to make matters worse, some of the less scrupulous lenders are calling in their loans at the drop of a hat, little warning, and leaving the people in critical situations. Some need to refinance immediately, some choose to ‘try’ to sell, some choose to fight, and some give up and become statistics of one sort or another. This is perhaps the most serious issue facing rural Australia – the ability of the Aussie farmer/battler to hang on under these conditions of incredible stress and trauma.
This post is about both sides of the situation.
1. What to do beforehand, to prevent it getting out of control
2. If the worst has happened, how to make your way through it and not only survive, but come back to make life hell for the ones who wanted to take you down!
Let’s start with the second point. In almost every seminar I deliver, anywhere in the country, I know that someone listening is there only because they need something from me, to take home to their wife or husband, partner or family, something that will let them say “There is a way out of this Honey, we can make it through!” For many, they know that today is the last day; that something has to happen NOW, or it’s too late. I have no doubt that some folks reading this will feel that way.
What to do? The bank has called in the loan, or the application was refused or whatever was the worst thing that could happen, did. Right now, you need that miracle. So where do you look for it.
The first thing is to treat this as a crisis, such as a car accident. What do we do there? We make sure that the folks are alive and are going to stay alive. First aid. Shock management and treatment. Call for help. Critical stuff.
In the first few minutes after you find out or get the call, you need to sit down and have a cuppa, just get over the initial shock. Some folks like to talk at this time; others like to sit in silence. However, it’s vital you don’t sink into despair and depression. I have a controversial view here, developed over 20 years of working with people going through this situation, in my time as a corporate rescue consultant, getting businesses out of trouble.
My view is that the human mind cannot hold two opposing thought constructs at the same time. You cannot be excited and depressed simultaneously. It is possible to feel both in the same day, the same hour, but not at the same time. Therein lies a short term solution.
If you have something to look forward to and get just a little excited about, then you can’t also be depressed at that moment. The key is to have little goals set that you can look forward to. Little ones that you can achieve, even if a stretch.
Perhaps you are sitting at home, crushed by this news. A short term goal, and this could be a tough one, may be to pick up the phone and call someone to talk it through? Who do you call? I don’t care, as long as it’s someone with some objectivity and a supporter for you. A counsellor, a friend, neighbour, someone who can relate and give you some time to talk and move to the next stage, of taking positive action.
For that matter, if you need someone to talk to and can’t think of anyone, call me! It’s not like it’s new to me either!
The next step is to talk the matter over with someone who has something that can help you, even if it’s only an objective airing of the situation to give you clarity. From here, you can start to map out the path through the maze, and back to level ground again. However, do make the call. I don’t give a rats if you think you are alone: while ever I pay my phone bill, you are NOT alone and I won’t cop that as your excuse to do something stupid! Call someone and start talking… You CAN make it through!
OK, back to the first point, how to prevent this situation occurring.
Farm incomes have been declining for some time, as most statistics clearly show, and there are a variety of reasons for it. Some farms are single focus income streams, others just have bad luck and when it hits, it all suffers. Diversification is vital, but having two or more sources of income from the farm is not the whole answer. Fat lambs and wool are a good combination, and some wheat or barley as well is great, but in a drought, if prices for all are depressed, then the farm income still suffers.
Most farm incomes can be diversified on-farm a little, and some mixed farming is possible in most places. Again, the old adage of not putting all the eggs in the one basket is pretty true, unless you have a VERY good basket and VERY good eggs and everything around both is rock solid. That farm is called Utopia; it’s next to Neverland, just up the Yellow Brick Road. For the rest of us, we need to think laterally.
Diversifying on-farm is common and important, but in the event of a drought, currency values going crazy as they are now, causing exports to be more expensive, commodities such as we produce can have severely depressed prices too. With lowered production comes lower prices, and lower incomes overall. It’s just a part of the solution.
Alternatives exist to diversify off farm. One of the great stand-bys was to get a job in town as well, to provide regular cashflow for groceries. Great idea. However, jobs can be lost too and in a drought, they can be hard hit as the regional economy also dries up with the lack of rain.
Rental property is another off farm investment. However, many of these are negatively geared, in other words, needs cash INPUT to supplement the rent received for the loan payments to be made. That’s OK if you have a tax bill, but many of us don’t and wont for some time. Real estate is rarely a cash cow to be milked, mostly it’s long term and the profit is made on sale, after years of being a CASHFLOW DRAIN.
Further alternatives exist in investing in areas and strategies totally unrelated to the farm income stream OR location. Sometimes, using some of the equity of the land/farm value to invest elsewhere can be a sound strategy also. These investments could include, but are not limited to:
Other rural property elsewhere in a different weather belt with different produce
Shares or other financial investments (get some good advice here!)
Trading shares or derivatives online from home (get some great education first!)
Investing in a small business elsewhere or in a major centre nearby
Internet businesses, working online from home and selling globally
Becoming a shareholder in another venture away from the farm that has cashflow
Creating another opportunity from home that works contrary to market forces (for example, a tow truck requires car accidents to have an income – what local problems could YOU create a local solution for?)
There are other opportunities too, within the Self Managed Superannuation Fund arena, where in December 2007, the laws were changed to allow SMSFs to borrow to invest in residential property. If you have a SMSF with some cash in it, perhaps you could structure it so you could take advantage of this rule change. The significant different here is that the fund MUST remain cashflow positive, so the investment strategy MUST pay for itself from rent and contributions you make.
We are finding that with this strategy working, a person with $150,000 super is likely to add an extra half a million dollars over 15 years to their fund, more than if they invested the same $150,000 in regular superannuation over that time.
There are other investments that can be linked outside of super and that will make the strategy totally SELF-FUNDING, in other words, once set up, you need never add another cent to it, and it will still self fund and give you that extra cash at retirement without further contributions.
The point of this is that there ARE opportunities out there and we CAN take advantage of them, but only IF we plan for them and get good advice first. I’m happy to work with anyone on these matters, and to use this forum to explore and discuss them openly so you can learn how they could benefit you.
If you are facing a crisis now, you have my sympathy and at the top of this page, you also have my phone number. If you don’t have a team working for you now, make one of those little goals to call it!