In our latest Q&A, we sit down with Pete Debus, Chartered Accountant and MD of PrincipleFocus, to discuss issues facing regional landowners in the renewable energy transition, and to explore how RELA is creating new pathways for landowners to succeed. With his deep agribusiness experience and people-focused approach, Pete shares how he works with RELA to help farming families overcome financial challenges and seize new opportunities in this changing landscape.
What changes in paradigms and behaviours do you believe are essential for improving landowner outcomes in the renewable energy sector?
A 2016 study by Canberra University indicates that only 29% of farmers have a written plan. Operating a farm as a business, establishing strategic and succession plans and a risk management process are key changes in thinking and processes for farming families to consider. The processes have application regardless of whether farmers enter a renewables project, given the increase in scale of family farming enterprises. Most farmers are no longer “small business owners”. We suggest these processes have greater application where a renewable project is being considered, to support achievement of the opportunities and the family goals.
Can you share your experience working with landowners using the RELA Prepayment?
We have worked with a number of farms seeking to ensure that renewable energy projects achieve family and farm business goals. The RELA Prepayment proposition makes sense for clients, in reducing project risk and providing capital funds up front to meet goals, including succession planning. The process is a turnkey solution with financial return models and tax outcomes considered, to enable a clear decision by farmers as to the appropriateness of the model to meet their needs.
What led you to focus on working with agribusiness clients in regional Australia?
Agribusiness now represents approximately 85% of PrincipleFocus’ client base. We’ve chosen to specialise, working with agribusiness and high net wealth clients.
The decision to focus on the agribusiness sector, made in 2010, is based on a belief that the sector would continue to grow, through “droughts and flooding rains”, until at least 2050, on the back of world population growth. We continue to view the sector as a very significant contributor to the economy, and with continuing productivity growth, outstripping the general market sector.
However deep down, the primary driver for our focus on farmers is “people”. “People matter most”. The reward for us is connecting, developing relationships and working with farming families – its real, authentic and presents a real opportunity to add value. Despite many stereotypes, farm business owners are highly innovative and strategically dynamic, with significant advances in markets, processes and agtech. The people we work with have a holistic focus on farm outcomes, a commitment to excellence, operate their farms as a business, and hold strong beliefs in family and community. Our clients share our values.
As a Chartered Accountant and Chartered Tax Advisor, how do your qualifications and experiences benefit your clients?
The qualifications are not just about accounting and tax. Both CAANZ and the Tax Institute provide very strategic training and thinking, and both have focused recently of the renewables market, carbon etc, as they are impacting all businesses.
However, the qualifications and technical expertise have promoted new thinking in developing business models and structures for clients. We work with clients, with a focus on succession planning, asset protection and wealth creation to build for future generations.
Pete, you’re known for your energetic and big-thinking approach. How does this influence the way you work with your clients?
Big thinking is future thinking. We work to the “windscreen” model. Like any journey, operating a farm business must have a destination, a plan, a succession plan. As with driving a vehicle, we spend 90% of the time looking out the windscreen, rather than the rear-view mirror.
Another analogy I heard was that 80% of accountants in Australia operate as statisticians at the end of a car rally, informing the driver how far they travelled, their fuel consumption etc. The other 20% are navigators sitting in the vehicle supporting the driver on the path forward and which route to take. PrincipleFocus takes that navigator role.
Energy = drive to change the numbers and the outcomes for clients.
Can you share a bit about your philosophy of seeing all your clients as friends and how this impacts your professional relationships?
Relationships with our clients are everything. Relationships can only be strong when there is genuine curiosity and parties have invested time and effort in communicating and understanding each other. The stronger the relationships the more honest the communication, the more we have an opportunity to truly understand a client’s business and their goals, and the greater the drive to support them achieve those goals.
What are some common financial challenges landowners face when managing their agricultural businesses?
We see challenges for farmers as internal and external. Significant internal challenges are succession, and building a highly adaptable and financially sustainable business, with an income return over the cycle of greater than 5% per annum. Farmers are addressing these challenges with greater business skills, a clear plan, governance and communication policies and establishing improved systems and processes.
Achieving those outcomes is challenging in a constantly changing external business environment, with increasingly volatile markets, increased regulatory imposition, constrained labour markets, competition for capital, and of course “droughts and flooding rains”. Again we see farmers meeting these challenges with greater adaptability, increasing their own business skills and strategic thinking.
From your experience, what financial opportunities do renewable energy projects present to landowners?
In volatile markets and with production variability and risk, renewable projects provide the opportunity to have a diverse, consistent income stream. These income streams usually are structured as lower risk and may also provide solutions for succession planning.
Though it’s important for farmers to understand where any renewables or carbon project fits into the farm business strategic plan. It can be a financial tool to assist in achieving the business and family goals. That is, renewable energy projects are not a destination, they are a tool that may assist farmers achieve family and farm business goals.
We consider it important that farmers do not use income from such projects to support less than superior farm performance, but as a complimentary income stream.
What concerns do you have about the current process and outcomes of renewable energy projects for Landowners?
Landowners entering into a project should have a strong understanding of “why” they are doing so, what they are intending to achieve, given the long term nature of the projects. A project of this nature is often an inter-generational commitment. Have all family members been involved in the decision process?
We suggest that farm owners undertake a proper risk assessment of the project to ensure that all risks are properly identified and dealt with at implementation (e.g. redundant assets, counterparty risks, land tax etc).
Landowners should recognise that many of the companies operating these projects are significant enterprises and may have different values and objectives to their family. Projects are more typically promoted by companies emanating from Spain, France, Asian countries etc with a very strong financial focus, significant experience, negotiating skills and legal expertise. Many farmers will be entering a project for the first time and come to the project at a disadvantage. Surrounding themselves with a team of experts with experience and skills, may assist farming families to reduce risk and increase the opportunity and desired outcomes.
As someone who challenges the status quo, what innovative approaches or strategies do you use to help your clients achieve the best outcomes?
Promotion of farming family communication, a strong focus on plans and goals (the windscreen) and “knowing the numbers” appear to be outcomes that deliver results. A positive mindset to identifying opportunities (continual curiosity), building the adaptability muscles, and long term thinking is also so important in agriculture.
Looking ahead, what are your goals for your practice, and how do you plan to continue supporting landowners and agribusinesses in their financial planning?
We know that the future will also bring new challenges and opportunities. The challenges faced and opportunities provided to farmers from renewables, emission reporting and planning, the changing regulatory framework, the challenge to increase farm turnover on increased land values and the avalanche of new agtech tools are matters on our mind.
You can still book tickets to Pete’s event on 18th October 2024.