Profit-sharing with the bank!

Check it out

How much are you profit-sharing with your bank or other moneylenders?

A quick look at the Profit and Loss Statement in your tax return this year will tell you. If you don’t want to wait that long, look at your 2023 tax return

Go to the Profit and Loss Statement and highlight the Net Profit at or near the bottom

Then go up the column to the line for Interest  or Interest paid and highlight it.

Compare the two figures

If Net Profit is four or more times the amount shown as “Interest” then you are probably going okay. If Net Profit is 10 times Interest, or more you are certainly not working for the bank.

If Net Profit is about the same amount as Interest paid then you are sharing your profit equally with the bank or other moneylender. That means that if you are working a 12 hour day on your farm or in your business, you are working 6 of those hours for the bank.

If interest is 3 times your Net Profit there is a more serious problem. That means you are working 9 hours a day for the bank.

If interest is 10 times your Net Profit, you are working about 10 hours a day for the bank. Time to change that.

It’s good to know

It is good to know who is making the most out of your working day, because sometimes we work long and hard to make a mountain of money for others but very little for ourselves.

The solution is usually to plan your finances to increase the profit you earn and decrease the interest paid to the bank. A budget that increases profit and decreases debt is the best solution.

Plan your profit in advance

I had always known that, but when I first first took control of a real estate development company in my mid-twenties then bought a couple of hire companies, the truth came home to me in my own company financial statements as well as those of my clients all over Australia. When I added a merino sheep property and then a beef cattle property, I really began to take it seriously. It is one thing to consult others but a quite different thing to do it yourself.

I learned that it pays well to watch the bank like a hawk because banks make their money by fixing themselves like leeches to their business and farm customers. We sometimes do not realise just how much of our profit they are sucking out of our account.

Doing my own budgets and changing the  financial structures so that we were making most of the profit took a bit of time but was very rewarding. When we run a farm or business, our focus tends to be mainly on crops, livestock, vehicles, fences and feed if it is a farm and on turnover, staff, marketing, materials, stock turnover and IT if it is a business. Finances may not enter the daily routine except when the bills come in and we look for funds to pay them or when we are asked to sign our tax return.

Often the financial statements remain a mystery simply related to our tax obligations. Even as an accounting student, the first set of financial statements I was given at a board meeting meant nothing at all to me. They could have been written in Chinese

As a friend once comment to a group discussion, “If you fail to plan, you plan to fail.” Financial Planning within a farm or business is what delivers the financial rewards for those long hard days of work.

Greg Bloomfield, GBAC