In preparation for a recent conference, I have been regularly communicating with a large number of agricultural lenders. In our discussions, many have pointed out that there are thing borrowers can do before annual review meetings that help make the task go more smoothly. These include:
1. Have your marketing and any expansion plans down on paper and make sure they “fit” your business plan. If there are any capital investments or expansion plans, be sure to have them researched and on paper. Include them in your proposed cash flow and list additional related costs like added insurance, maintenance, or labor. Know what is in your financials and understand how they depict your financial condition. These should include a balance sheet, cash flow statement and income statement. The cash flow projection should include “what if” factors concerning price, cost and capital acquisitions. The income statement may be the tax form, but an accrual-adjusted income statement is preferred. Remember, additional information on personal debt, especially credit cards, should be provided. It also is important to provide documentation to support your financial statement entries. Lenders generally are required to verify information such as account balances.
2. Understand how much financing you need for the upcoming year. Know the difference between wants and needs before you make your “ask” to your lender. They aren’t there when the cows are standing in 100-degree heat or you’re fighting equipment issues while feeding in sub-zero temperatures. So don’t expect them to know that the ventilation needs upgrading to improve cow comfort, or the feeder wagon can’t handle an extra 200 cows. Both investments may yield extra profit, but it is your responsibility to show it on paper.
3. The meeting should not be adversarial -- you’re a team. The borrower and lender have similar goals in that they want to ensure the long-term viability of their businesses. A successful relationship requires cooperation and professionalism by both parties. Remember that his or her decisions are derived from the information you provide; accurate and complete financial information allows the ability to fairly review your “ask.” A good relationship is built on a mutual understanding of the business and its financial condition.
The Iowa State University Extension and Outreach Dairy Team has compiled budgets available to use. These budgets were prepared as financial decision-making tools to current and beginning dairy farmers. Budgets represent many variations of conventional, organic and pasture operations. They are available here.