FOR ASPIRING FARMERS

The money side of your farm plan: finance, backing and governance

Your plan needs to hold up in a drought year as well as a good one. It also needs to show anyone backing you exactly how the arrangement would work.

In your Farm Ownership Plan, that work falls to three sections: the financial plan, the backing plan and the governance plan.

The financial plan

Set out your capital needs, and your planned income and spending, in a simple, understandable form. This usually means spreadsheets with dollar estimates, plus notes explaining your assumptions and calculations.

You'll usually build this section with an accountant, a farm adviser and the retiring farmer.

Map out everything you need to buy and establish the farm: the farm itself, stamp duty and legal costs, new buildings, equipment and machinery, and power connections. Add longer term spending where you've described it in your operating plan.

The farm purchase

• What you know about the farm's availability or sale
• What you expect the price to be, per hectare and in total
• How you arrived at that price: a valuation, or comparable sales
• Whether you think it's a bargain, fair, or overpriced, and why
• Whether you'll negotiate, and what arguments you'll use

Land value is a key factor for anyone backing you. Make clear why the price is fair. You might set out how you'd change or diversify land use over time.

Your farm budget

Build a detailed annual operating budget. On the cost side:

• Financial costs: lease payments and bank interest
• Livestock: purchase, cartage, health and levies
• Pasture and cropping: feed, fertiliser, chemicals, contractors and seed
• Labour: wages, super, insurance and training
• Repairs and maintenance: buildings, fences, vehicles and yards
• General overheads: accounting, software, advisers, electricity, fuel, insurance, rates and phones

On the income side: produce sales, ecotourism, camping and glamping, and any other income.

Your projections should go further than average seasons. Include scenarios for poor years and good ones, allowing for changes in yield, price and production costs.

The backing plan

This is the heart of your Farm Backer Pitch. It's a private document for the people you'd like to back you, and never a public offer.

Outline the terms on which you'd like a retiring farmer or a personal backer to work with you. You can keep it general. They'll have their own ideas, and the final arrangement becomes clear as you negotiate.

• Your contribution, and in what form: cash, building a house, contributing machinery
• Whether the retiring farmer is keeping some equity
• Whether family or friends are thinking about backing you
• Whether you plan other finance, such as a commercial loan
• After all of that, what you're seeking from a backer

Some debt may be appropriate. Debt is often cheaper than what a backer expects in return.

Who owns what

Common arrangements include:

• Two separate entities: one owns the farm, and the other runs the farming business
• Each person owning a share in line with what they put in
• The farming family buying out the retiring farmer's share step by step, over an agreed time

What's in it for the farm backer

Set out the planned lease payments, and how a backer might be rewarded if the farm's value grows. People can be drawn in by more than the financial side, too: visiting the farm, buying the produce, bringing friends, even coming along to help out.

A backer will also want to know their money is protected if things go wrong. That's what security is for. The guide gives examples such as a second mortgage, a caveat or an agreed share of ownership. Which one fits is a question for your accountant and solicitor.

The exit

• The planned timeframe
• What you expect the ownership position to be at that point
• Whether you want the first option to buy outright at the end

Setting a timeframe shows you're keen to own the farm in the end. You're driven by a bigger goal, not just looking for a place to park.

The governance plan

Explain how you'll run a well governed business and bring in outside expertise:

• The measures you'll use to track how the farm is going, and how you'll check them
• What financial and performance reporting there will be
• How meetings will run, and how disputes will be resolved
• How business plans are developed and big decisions made
• What outside expertise you'll use: feed and nutrition, agronomy, animal health, insurance, bookkeeping

Many aspiring farmers set up a board of the farming family, key advisers and businesspeople they trust: a real estate agent, accountant, lawyer, stock agent or banker.

You can do it before you own a farm. A board keeps you motivated, gets you good advice, opens doors to networks, and impresses retiring farmers and backers.

The full guide, You Can Own a Farm, is free at cultivatefarms.com/resources.

You can build your own plan at cultivatefarms.com/plan.