While lecturing at a recent agricultural lending school, I provided the eager learners with a challenge. I instructed them to develop a wish list of producer practices they would most like to see from their customers in regards to finance and risk management. Of course, ideas immediately began to flow. And for any producer, this is an excellent self-test of performance.
One lender stated, “I wish producers would take more time with their financials instead of delegating the responsibility to an accountant or lender.” This lender went on to say, “This disconnection also becomes compounded when customers then instruct their accountant to minimize the tax payment by any means necessary.” Perhaps if less involved in tax minimization, these producers could consider the overall financial picture and thus, tax management.
Another wish was for more timely financial statements such as the balance sheet. The wish was, “I wish for financials just after the first of the year.” Clearly, lenders desire more accuracy and transparency concerning assets and their valuation. More transparency also includes listing all liabilities including accounts payable, leases and credit card debt.
One popular wish on these lenders’ lists was using borrowed monies appropriately. Specifically, these lenders wished producer customers would not make capital purchases of machinery or land out of the operating loan. Similarly, lenders do not like situations where a producer makes a purchase and then seeks the financing to cover it. This is not a reasonable approach or timeframe in which to borrow money, as these requests often accompany an immediate need.
Several lenders wished their producer customers would at least attempt a projected cash flow. It is true that price, cost and production will all fluctuate, but with a little thought and planning one can better understand the short- and long-term financial outlooks. This is particularly true when done with scenario planning.
In today’s economic reset, refinancing requests are a needed option for many, which lenders recognize. Yet, another common wish from lenders is that when making this request, the producer would accompany it with a written recovery plan. What changes will be made in living cost, expenses and marketing and production practices? Will the producer develop that side-by-side approach that is necessary in adverse economic times?
As it turns out, these wish lists were a fun and energizing exercise for the lenders. But they are also helpful for producers in beginning to think about the next meeting with their lender. After all, these wishes may enhance one’s ability to obtain credit and improve the business’ bottom line at the same time.