Harvest can bring money into an agricultural business, but it can also expose financial pressure that has been building for months.
For farming businesses, agricultural contractors and transport operators around Rupanyup and the wider Wimmera, the lead-up to harvest can mean higher spending on fuel, wages, repairs, contractors, freight and suppliers.
If the business is also carrying ATO debt, those seasonal expenses can become much harder to manage.
The immediate reaction may be to find another short-term loan.
Sometimes additional working capital may be appropriate.
But when tax debt is already taking money out of the business, it is worth looking at the whole position before adding another repayment.
How Does ATO Debt Build Up in a Seasonal Business?
ATO debt does not always arise because a business is performing poorly.
Seasonal cashflow can contribute.
A business may have BAS, PAYG or other tax obligations falling due while a large portion of its income is still tied to the production cycle.
A contractor may have completed work but still be waiting for customers to pay.
A transport operator may be funding fuel and wages while invoices remain outstanding.
During a tight period, tax payments can be deferred while more immediate expenses are prioritised.
One missed obligation becomes another.
Eventually the business enters harvest with both current operating costs and older tax debt competing for the same cash.
That is when the structure deserves attention.
A Good Harvest Does Not Automatically Fix Old Debt
It can be tempting to think:
“We’ll clear it when harvest money comes in.”
Sometimes that happens.
But harvest proceeds often already have several jobs waiting for them.
Suppliers need to be paid.
Equipment may need repairs.
Existing loans continue.
The next production cycle will require cash.
There may also be personal drawings and other business commitments.
If all of the expected harvest income has effectively been allocated before it arrives, relying on the season to solve an accumulated ATO balance may leave the business in exactly the same position again next year.
It helps to work out how much of the debt can realistically be cleared from seasonal income without leaving the operation short of working capital.
ATO Repayments Can Compete With Harvest Expenses
A business may already have an ATO payment arrangement in place.
That can provide a pathway for dealing with the debt, but the repayments still need to come from cashflow.
During harvest, the same business may also be paying for:
Diesel
Employees
Contractors
Repairs and servicing
Freight
Supplier accounts
Insurance
Existing equipment finance
Other business loans
The question becomes whether the business can comfortably meet both the ATO commitment and its seasonal operating expenses.
If it cannot, adding another short-term loan without considering the existing structure may simply move the pressure elsewhere.
When Working Capital May Still Be Relevant
ATO debt does not automatically mean the business should refinance everything.
The underlying issue may genuinely be a short seasonal gap.
For example, the business may have a manageable ATO arrangement but needs additional working capital for six or eight weeks while harvest costs peak.
In that situation, a suitable seasonal working-capital facility may still be worth considering.
The important thing is understanding the difference between:
A temporary seasonal shortage
and
A recurring debt problem that is consuming operating cash.
Those situations require different conversations.
Is the Business Waiting on Customer Invoices?
For agricultural contractors and transport operators, part of the pressure may be sitting in unpaid invoices.
The work has already been done.
Customers simply have not paid yet.
That can be particularly frustrating when ATO payments, wages and fuel are due before the invoice money arrives.
Where eligible business-to-business invoices are creating the gap, debtor or invoice finance may be one option to consider.
Rather than borrowing a fixed amount unrelated to the business’s sales, an eligible facility may provide access to funding linked to qualifying unpaid invoices.
Whether this is suitable depends on the debtor ledger, customer mix and lender requirements.
It is not appropriate for every business.
But where slow-paying customers are contributing to the tax and cashflow problem, the debtor book deserves attention.
Business Debt Secured Against Property May Also Need Reviewing
Some farming and regional businesses have accumulated business debt against property over time.
A facility may have been established years ago.
ATO debt may later have developed.
Short-term business loans may have been added.
Equipment finance may also be running separately.
Eventually the business can have several different debts with different terms, repayment schedules and security arrangements.
When another cashflow requirement arises, it can be worth reviewing the complete structure rather than treating each debt separately.
Depending on the circumstances, refinancing or restructuring some business debt may be possible.
That does not mean replacing debt will automatically reduce interest, repayments or total cost.
Any proposed restructure should be assessed carefully against the existing facilities and the business’s longer-term position.
Avoid Using Short-Term Finance to Hide a Long-Term Problem
Quick access to working capital can be useful when the requirement is genuinely short term.
It becomes more concerning when a business repeatedly uses new short-term facilities to repay older debt.
For example:
ATO debt is paid with a business loan.
The business loan creates a large repayment.
Working capital becomes tight.
Another loan is then required to cover suppliers.
By the next harvest, the business has more debt than it started with.
That is not a seasonal finance strategy.
It is debt layering.
When that pattern starts appearing, the objective should be to understand the overall cash position before adding another facility.
What Does the Business Owe Now?
Before considering new finance, it helps to put the existing commitments in one place.
How much is owing to the ATO?
Is there a payment arrangement?
What are the regular repayments?
What equipment loans are running?
Are there short-term business facilities?
Is business debt secured against property?
What supplier accounts are due?
What money is expected from harvest?
What invoices are currently outstanding?
Once those figures are visible together, it becomes easier to identify where the real pressure is coming from.
The solution may be much more obvious than when each payment is considered separately.
Do Not Use Every Dollar of Harvest Income to Clear the Past
Reducing debt can be a worthwhile objective.
But an agricultural business still needs cash to keep operating after harvest.
The next season does not start with a clean slate.
There may be inputs to purchase, machinery to maintain and normal overheads to meet.
If every available dollar is used to repay old debt and the business then needs to borrow again for ordinary operations, the cycle has not really been broken.
A sensible debt strategy needs to consider both repayment and future working capital.
That balance will be different for every business.
Plan Before the Cash Starts Moving
The weeks before and during harvest can be a useful time to understand what will happen to incoming money.
Estimate what harvest income is reasonably expected.
Then map out the major commitments against it.
ATO debt.
Suppliers.
Equipment repayments.
Working expenses.
Existing loans.
Future seasonal costs.
That can help determine whether the business simply needs temporary working capital or whether a broader debt review is required.
A Strong Season Is an Opportunity to Reset the Structure
Harvest should not only be viewed as the point when bills finally get paid.
For a business carrying ATO or other accumulated debt, it can also be an opportunity to decide what the finance structure should look like going forward.
Thrive Broking can assist businesses considering working-capital finance, debtor finance, ATO debt funding and restructuring of existing business facilities, depending on the circumstances and lender assessment.
If you are around Rupanyup and ATO debt is competing with harvest expenses for the same cash, speak with Thrive Broking before automatically adding another short-term loan.
We can look at the existing debt, seasonal cash requirement and expected incoming funds to help determine which finance options may be worth considering.