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There is a natural rhythm to the farming year, with periods of planning and preparation followed by the intense demands of lambing, calving and mating. For those considering buying, selling or expanding a property, getting the groundwork in place early can make the process far easier when an opportunity comes along.
Having the numbers, finance and due diligence in order ahead of time means there is less pressure to make important decisions quickly when the right property comes to market.
Buying a farm is a long-term strategic decision, and there is a shift in how farmers approach major investment decisions.
Farmers are generally becoming more sophisticated in the way they manage their businesses. Rather than jumping at an opportunity, they are taking more time to consider their options, seek advice and understand the risks and rewards involved.
That is particularly important after years of challenging commodity cycles. Experiences with lower milk and meat prices have encouraged many farmers to think carefully about debt repayment and where their available capital is best placed.
For some, that might mean expanding the farming operation. For others, paying down debt or investing in residential or commercial property may provide a better balance of return and risk.
The important thing is understanding what each option means for the overall business and family.
For those considering a property purchase, having financial information up to date can make the process much smoother.
Annual accounts are best completed as soon as possible after balance date, as recent financial results are commonly requested by banks when assessing finance applications. Having these ready can help avoid unnecessary delays when an opportunity comes along.
A long-term cash budget based on the current operation can also provide a useful baseline, alongside scenario budgets that model a potential purchase or expansion.
A month-by-month cashflow forecast can further highlight seasonal pinch points and working capital requirements, providing a clearer picture of what the business can comfortably manage.
It is easy to get caught up in the excitement of finding the right property. But before making an offer, it’s worth having a clear understanding of borrowing capacity and the level of additional risk the business can comfortably take on.
A useful starting point is to assess the current position, then model how adding another property could affect the business. This includes looking at changes to debt and cashflow, how the numbers might hold up if commodity prices fall, and what level of return would be needed to justify the additional risk.
While these may not always be easy questions to answer, working through them early can provide greater clarity when it comes time to make a decision.
A farm can look like a great opportunity on paper, but the purchase price is only part of the story. These days, buyers are looking much more closely at what they are actually getting for their money. Infrastructure can have a big impact on the true cost of a property, particularly if significant work is needed after settlement.
It is worth looking closely at the cowshed, effluent system, water infrastructure, fencing, buildings and other essential assets. A few seemingly minor issues can quickly add up to a sizeable capital bill.
Nobody wants to buy a farm and then discover the pipework needs replacing or the water system is leaking like a sieve. Good due diligence helps uncover those costs before a decision is made, giving buyers a clearer picture of what the property will really cost to own, operate and develop.
Buying another farm is not necessarily the best way to grow wealth or strengthen a family's financial position.
For some established farmers, paying down debt may make more sense. For others, residential or commercial property could provide a different investment opportunity, or continuing to invest in the existing farm may deliver the best return.
It's not just established farm owners weighing up these choices, either. Contract milkers and sharemilkers are also considering how residential property could help build equity before taking the next step towards farm ownership and investing in a herd.
There is no single right answer. The best option will depend on the individual business, family circumstances, financial position and how much risk can comfortably be taken on.
Rural property transactions involve significant amounts of money, and the process can take longer than expected. Researching a property, completing due diligence and arranging finance all take time.
Getting started early means there is less pressure to make decisions quickly when a property comes to market. Professional advisors can help work through the numbers, compare different options and assess borrowing capacity, risk and potential returns before any major decisions are made.
The more preparation that happens upfront, the easier it is to move when an opportunity comes along.
If buying, selling or expanding is on the radar, now is a good time to start asking some difficult questions.
What happens if nothing changes?
How much can the business realistically borrow?
Is the potential return worth taking on additional risk?
Would the available capital be better used elsewhere?
What would a purchase mean for the wider family and the next generation?
Starting with a status quo budget can help. From there, different scenarios can be modelled to see how a purchase or expansion could affect debt, cashflow and the overall position of the business.
There is no need to have every answer straight away. But working through the questions early can make the decision much clearer when the time comes.
Spring will bring the usual mix of lambs, calves, early starts and long days. It can also bring new rural property opportunities. Having annual accounts completed, borrowing capacity understood and budgets and cashflows prepared means there is less to do when a property that looks right comes along.
The best time to prepare for a rural property transaction isn't necessarily when a farm hits the market. It is during the quieter months, when there is time to look at the numbers properly, consider the options and get advice.
Findex NZ Limited trading as Findex.
The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex.
See our disclosure information on our website Disclaimer and Disclosure (findex.co.nz)
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Jarrod is a Partner in Accounting and Business Advisory, with more than 20 years of accounting and business advisory experience. He works with a diverse range of clients, from rural and small family businesses through to larger corporations. From a Waikato farming background, since 2015, he has focused on agribusiness, becoming a trusted advisor to clients across the dairy, drystock, and horticulture sectors.
He specialises in the strategic issues that matter most to business owners, including succession planning, business structuring, due diligence, sale and purchase decisions, budgeting, and compliance. His focus is always on profitability, helping clients cut through complexity to make confident decisions that move their businesses forward.
Jarrod has New Zealand and international public practice experience, beginning his career as a corporate tax advisor in Auckland. He later worked in public and private practice in the United Kingdom, advising on complex matters including mergers and acquisitions, refinancing and restructuring, cross-border transactions and corporate governance.
He works closely with clients face to face, taking a collaborative approach to understand each client's goals and build strategies to achieve them. He is equally committed to our local communities, currently serving as chairperson of a local charitable trust and as a trustee on another community organisation.
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