Solutions for a hopeless situation
This real-life case study demonstrates that a seemingly hopeless situation can be turned around with the right tools, knowledge and skills, which in this instance were accessed for free from RFCA WA.
A farming couple needed to retire due to age and the wife’s poor health. They wanted their two children to be able to take over the property sometime in the next 10 years, but the children did not want to do this immediately.
They leased out 500ha of the property and retained the home and 100ha that they continued to run sheep on.
A downward spiral
Unfortunately, their ongoing income fell short of meeting their needs, including growing medical bills, and servicing the $180,000 bank debt on the $1.5m property.
They fell behind on rates and general utility bills and started to run up their credit cards. Some loan payments were late and then a few were missed.
The bank put them on to default interest rates, then moved them into asset management (where the bank monitors all expenditure), with a further increase in interest rates. Finally, the bank required full payment or the liquidation of assets.
This seemingly inescapable downward spiral, made worse by increasing interest rates, was naturally highly stressful. The couple wanted to keep the farm for their children but could not see how they could break the cycle and escape a forced sale.
RFCS WA review
The couple contacted RFCS WA and an experienced, qualified rural counsellor visited them on-farm for a confidential review.
This included understanding the couple’s objectives and personal goals and a detailed financial analysis using a proven business model. This tool enables examination and comparison of the outcomes of different options.
The goals were set as saving the property, achieving a positive income-expenditure balance and eliminating debt so the couple could have a secure future.
Analysis revealed there was no machinery worth selling and no non-property assets that could be liquidated other than livestock.
The first step was to create a “breathing space”.
With the help of the Rural Financial Counselling Service the couple were able to negotiate an interest only period with the bank.
This “holiday” gave them time to catch up with outstanding bills and creditors. The counsellor sorted through with them all of the commitments they had and prioritised them. The credit cards were paid out in full.
The Shire was also approached and a payment plan was arranged. The same was done for the utility bills that had run up.
At the end of eight months all of these bills had been taken care of and the couple found that they were managing their money in a much more efficient way.
Analysis of the livestock led the couple to decide the sell off their cows. A good price was realised and a portion of the proceeds went towards decreasing the core debt.
They were also able to re-negotiate the lease, including leasing an additional 50ha, to generate more income.
The 50ha they retained included good sheep country , enabling them to run up to 300 DSE within a self-replacing flock. This enterprise yielded increasing profit.
At the end of the interest only period the bank reviewed the clients position and agreed to continue the lending facility rather than forcing sale of the property.
The position will be reviewed annually.
The couple are continuing to make inroads into their core debt.
They report that they are now feeling confident about their future. This is in large part due to them understanding their position more fully. They are now more acutely aware of the importance of strong financial management and they have acquired the skills and tools they need to maintain it.
The seemingly inevitable spiral has been broken.
The solutions they have implemented were not imposed on them by a forced sale but were chosen by them as best serving their goals. This is a key aspect of RFCS WA work, to be on the farmers side and work for the outcomes they want.
While this back-from-the-brink turn-around is an outcome RFCS WA is rightly proud of, the couple’s counsellor is quick to emphasise that an earlier intervention could have been even more successful, with less stress to the people involved.
“Act early” is a key message to farmers doing it tough.
Find out more at rfcswa.com.au and contact a counsellor direct (go to Contact > Counsellors on the website) or phone 1800 612 004.
RFCS WA is operated by a not for profit community group and receives funding from both Federal and WA governments.
Services are free to farmers, foresters, fishers and small rural businesses servicing them, that are doing it tough.
Counsellors are country people, farmers and from farming families in the main, with skills, knowledge, experience and formal qualifications in business financial management.
Some details in this real-life case study have been changed to preserve client confidentiality. All of RFCS WA’s client work is strictly confidential.
Media contact Mr Chris Wheatcroft (CEO of RFCS WA) 0448 773 331