The business of farming is an incredibly specialised one which requires in-depth knowledge, skills and experience to succeed. Leech & Partners Ltd has enjoyed a long association with the rural sector and is widely-regarded as a leading accountancy adviser and partner the agri-business sector. We offer down-to-earth practical advice as well as a total farm accountancy management and financial planning service which better enables our large number of rural clients to get on with the business they understand and do best.
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Our farming clients are involved in both traditional and new farming practices with sheep, beef, dairying, deer, pigs, goats, horses, alpaca, traditional cropping, specialist small seeds, market gardens and vineyards.
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We have developed our own KPI and Benchmarking database as well as utilising the best national databases available to help you analyse your financial results.
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One major issue facing farmers today is succession planning. We are experienced in ensuring the structures are correct so that you do not have costly problems in the years to come.
Farm Accountancy Services
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GST returns and cashflow reports – Reporting on actual to budget and/or last year
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Budgeting and cashflow forecasting/management
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Full annual account preparation
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Taxation planning
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Regular business performance analysis
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Asset schedules and Depreciation reports
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Valuation options
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Succession and trust/estate planning
We are certainly in interesting times within the dairy industry and the economics of the sector are rapidly changing. This requires consideration of a range of issues, including the allocation of capital, cashflow and taxation.
You will appreciate that we constantly strive to keep ahead of the game on matters that affect your business, and this has resulted in the sourcing of two opportunities related to the dairy sector that are outlined below.
If you have any interest in either releasing capital and improving your cash-flow or in rapidly expanding your business, then the following structures may be of great interest to you
Most advisors are suggesting that the present value of dairy cows is either at its peak or close to it, and the timing is probably right to consider reviewing your herd scheme election. At the same time, consideration could be given to a capital reallocation within your dairy business to ensure optimal use. In any review of your herd scheme election tax will be an issue that requires detailed consideration.
One way of combining all of these is by the sale and lease back of a proportion of your herd in order to free up capital whilst improving your cashflow. Doing this will give you the scope to allocate your capital to alternative uses whilst obtaining tax deductions for ongoing lease payments.
We have reviewed a financial structure developed by a leading corporate agrifinance company that combines all of the necessary elements to produce very effective results.
By way of example, a dairy herd of 1,000 cows using the structure to refinance 60% of their herd would be able to free up capital of around $1.2 million and gain a cashflow advantage of $158,000 over traditional bank finance over a three year period. Alternatively, simply by accelerating the effect of an exit from the herd scheme, the net present value of using this scheme in the above example is calculated to be $149,000.
An additional advantage of this scheme is that early adoption will reduce the problem that you are likely to face of IRD Use of Money Interest on the under provision of tax for the current year. However, you should be discussing with us an uplift in your provisional tax payments in any event.
Higher dairy payouts offer opportunities to grow your business rapidly, but current cow prices impose limitations on this. A financial structure has therefore been developed that provides the necessary capital for expansion.
The structure caters for higher initial gearing, rapidly repays debt, has cost-effective payments to suit cashflow and allows early repayment or a transfer of debt to an interest-only loan.
Again, by way of example, a business that wants to expand a dairy herd from 500 cows to 1,000 cows would be able to enter into a similar lease agreement for the increase in the herd. The cashflow benefit over traditional bank finance in this example is calculated to be over $128,000 over a five year period.
THE NEXT STEP
If you would like more details and an initial review of whether these plans would provide similar benefits to your business then please contact us.
We have fixed the cost of the initial review work at $1,000 plus GST and if you follow through with the scheme, we have fixed the cost of implementation at $5,000 plus GST.
We can also arrange for interested dairy farmers to meet with representatives of the agrifinance company to discuss this in further detail.
If you have any queries regarding either of these structures then please do not hestiate to contact Chris Heffernan on 03 3076688 or by email to chris@leech.co.nz
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