More land can create an opportunity.
It can also create a much larger cash requirement than the purchase price or annual lease suggests.
A neighbouring block becomes available.
Another farm comes onto the market.
There is an opportunity to lease additional country.
Or the business has simply reached the point where the existing acreage is restricting further growth.
Around Ararat, where broadacre cropping and grazing remain important parts of the rural economy, expanding the land base can be a logical next step for an established farming business.
But the finance conversation should not stop at:
“How do we pay for the land?”
The business still needs enough money to operate the additional hectares once it has them.
Another 500 Hectares Can Need Much More Than the Lease Payment
Consider a farming business taking on another 500 hectares.
There may be an upfront lease payment or property purchase to deal with.
But then the additional land needs to produce something.
That may require:
Seed
Fertiliser
Chemical
Fuel
Contractors
Wages
Machinery hours
Repairs
Insurance
Freight
Additional livestock
Fencing or water infrastructure
The extra hectares can therefore create a substantial working capital requirement before they generate additional income.
With around 30 years in finance, Thrive Broking wants to know about both sides of the expansion.
What does it cost to secure the land?
And what does it cost to operate it?
If only the first number is financed, the business can complete the expansion and immediately find itself short of cash.
Buying Land and Funding the Farming Business Are Different Requirements
If additional rural property is being purchased, the property transaction may need to be considered through appropriate commercial or property lending channels.
That is one finance requirement.
The operating business is another.
The farm may also need another $100,000, $200,000 or more of working capital depending on the size and nature of the expansion.
Those requirements should not automatically be treated as one large pool of debt.
There may be value in separating:
The land purchase
Machinery purchases
Livestock or inputs
Infrastructure
Seasonal working capital
Existing business debt
Thrive Broking can look at the broader
business finance requirement and work through which parts of the expansion need separate treatment.
The objective is to make sure the business has a workable funding structure after the property or lease agreement is completed.
Looking at More Land? Show Us the Expansion Before You Commit
If you are already considering another farming property or additional leased country around Ararat, talk to Thrive Broking before assuming the purchase price or lease cost is the full finance requirement.
Tell us:
How much additional land is involved
Whether you are buying or leasing
The purchase price or annual lease commitment
What the additional land will be used for
Expected input costs
Whether additional machinery is required
Any fencing, water or infrastructure work
Existing business and property debt
The cash contribution available
How much working capital the business already has
That allows us to look at the expansion as an operating business decision, not simply a land transaction.
What Will It Cost Before the First Extra Income Arrives?
This is where the numbers become useful.
Suppose the additional land will require:
$50,000 in crop inputs
$35,000 in contractors
$25,000 in fuel and machinery costs
$20,000 in fencing and water work
$15,000 in other operating expenditure
That is $145,000 before considering the cost of buying or leasing the land itself.
The business may not receive the additional income for months.
That means the working capital requirement exists from the beginning.
Depending on the circumstances,
working capital finance may need to be considered separately from the property or lease commitment.
Do not complete a major expansion and then start calculating what it will cost to farm it.
Calculate that before the commitment is made.
Do You Need More Machinery as Well?
Additional hectares can quickly expose machinery capacity.
The current tractor may already be heavily utilised.
The existing seeder may make the program too slow.
A larger sprayer might be required.
Harvest capacity may need to increase.
More livestock may require additional handling equipment.
The business can therefore move from:
“We are taking on more land”
to:
“We also need another $300,000 of machinery”
very quickly.
If machinery purchases are likely, include them in the expansion plan from the start.
A new tractor, sprayer or other equipment may potentially be considered through
machinery finance, depending on the asset and borrower.
But the important issue is total commitment.
Financing the land first without considering the machinery that follows can use cash or borrowing capacity that was expected to support the next purchase.
Leasing More Land Still Creates a Finance Requirement
Buying is not the only way a farming business expands.
Leasing additional country can avoid the large capital requirement associated with purchasing land.
But that does not mean the expansion is cheap.
There may still be:
Lease payments
Inputs
Machinery
Labour
Fuel
Contractors
Insurance
Repairs
Livestock purchases
Infrastructure or maintenance obligations
The difference is that the business does not own the additional land at the end of the lease.
That makes the commercial calculation particularly important.
What income is the extra acreage expected to generate?
What will it cost to operate?
How long is the lease?
What capital improvements is the tenant expected to make?
Does the existing machinery have enough capacity?
The lease amount is only one part of the decision.
More Land Can Increase Revenue and Still Tighten Cashflow
Growth often needs cash before it creates cash.
A farm can increase its potential turnover substantially and still have a tighter bank balance for the next six months.
That is not necessarily a sign that the expansion is unsuccessful.
It may simply reflect the amount of money being invested into the larger operation.
The important thing is knowing that before the expansion begins.
If another 500 hectares adds $200,000 of expenditure before the first new crop income arrives, the business needs a plan for carrying that $200,000.
It cannot rely on the future revenue while paying today’s bills.
Existing Debt Needs to Be Included
Expansion is also a good time to look at what is already sitting inside the business.
There may be:
Farm property debt
Machinery loans
Vehicle finance
A business overdraft
Seasonal working capital
ATO debt
Short term business loans
Balloon payments approaching
None of those commitments disappear because the business has found an opportunity to expand.
If existing repayments are already taking a substantial amount of cash each month, adding the new land, machinery and operating expenditure may create more pressure than expected.
That does not automatically mean the business should refinance existing debt.
Sometimes the current facilities are perfectly suitable and should remain where they are.
But they need to be included in the calculation.
Do Not Use Every Dollar of Cash for the Property Deposit
A large cash contribution can reduce the amount borrowed for a property purchase.
It can also leave the operating business short of money.
Suppose the business has $400,000 available.
Using the full amount towards the land may appear attractive because it reduces the property debt.
But if the expansion also requires another $150,000 of inputs and operating expenditure, the business may need to borrow that money back through a different facility almost immediately.
The better question is:
How much cash should the business retain after settlement?
That amount will differ from one farming operation to another.
The point is to make the decision deliberately.
Do not leave the business with an excellent property deposit and no money to operate the additional land.
Expansion Can Also Increase ATO and Tax Obligations Later
A stronger business can create larger future tax commitments.
More turnover may mean larger BAS obligations.
Additional employees can increase PAYG and superannuation requirements.
A profitable season can lead to higher tax payments later.
Those future commitments should be considered when cash begins improving.
It is easy for a growing business to see a larger bank balance after income arrives and assume the expansion has created surplus cash.
Some of that cash may already have another job.
This is another reason a good working capital plan should look beyond the immediate purchase.
What If the Neighbouring Property Comes Up Unexpectedly?
This is often how agricultural expansion happens.
The business was not actively looking.
Then the property next door becomes available.
It may be an opportunity that will not come around again for years.
That can make the decision feel urgent.
But urgency should not stop the business from understanding the complete funding position.
Before making an unconditional commitment, work through:
Purchase or lease cost
Likely property finance
Cash contribution
Additional operating expenditure
Machinery requirements
Infrastructure
Current debt
Expected income from the expansion
The question is not simply whether the farm can acquire the additional land.
It is whether the larger farming business can comfortably operate after it does.
Ararat Has a Genuine Mixed Farming Base
Ararat Rural City has a strong agricultural economy spanning broadacre cropping and grazing. Victorian Government information identifies the region with merino wool, cropping and other primary production, while Agriculture Victoria has documented mixed sheep and cropping businesses operating immediately around Ararat.
That makes expansion through additional land a realistic commercial decision for farming businesses in the district.
But adding hectares should increase opportunity, not simply increase debt.
Tell Us About the Land and What It Will Cost to Farm It
If you are around Ararat and are considering buying or leasing additional farming land, tell Thrive Broking about the whole expansion before you commit.
Tell us what the land will cost.
Then tell us what it will cost to operate.
Include machinery purchases, inputs, infrastructure, existing debt and the amount of cash you want to keep available.
With around 30 years of finance experience, Thrive Broking can look at the business finance and working capital requirements alongside the broader property transaction.
More land can create more opportunity.
The finance needs to make sure the business still has enough cash to take advantage of it.