Who is your bank manager? This might seem a simple question for most farmers; however, for some agricultural businesses, this is a key question, which may require action. The importance of farmers and bank managers getting to know each other has rarely been more important.
During the last couple of years, the low farm-gate prices mean that many farming businesses have struggled for profitability and cash. This can manifest itself in many ways for the business. Increased borrowing or having to bring forward sales of crops and animals are typical.
Farmers and Bank Managers: The importance of understanding job titles.
If you are in this position, you may have had a “Letter of Concern” from your bank. You may have been introduced to a new bank manager with a job title such as Special Situations Manager; Turnaround Manager; Relationship Manager – risk; or Business Recovery Manager. This type of change in your relationship with your bank should be taken very seriously. There will be specific objectives to be achieved.
In simple terms, a recovery manager will have three objectives:
1. Help return the business to mainstream banking,
2. Encourage the business to re-bank elsewhere, or
3. Get the bank’s money back!
There is also a fairly tight timescale with regard to the farming business making changes. The usual timescale for one of the three objectives to be achieved is about 18 months. Almost all farm businesses do end up back in mainstream banking, but to do this, you must show that you have a viable business, which you can manage without going over agreed bank overdraft limits or constantly increasing borrowing. This usually must be demonstrated in practice, rather than having a forecast which shows that the business performance will improve in the future.
To do this within 18 months is a tall order for most farming businesses, so swift action is often required. This usually means that you will need to assess your business, possibly with the help of an agricultural consultant, or accountant. Then you will need to prepare some forecasts to show what the profitability, cash flow, and balance sheet will look like over the next year to three years including any proposed changes to the way the business is run.
It is highly likely that you will need to make changes to the way that your business is structured and run. Changing nothing will result in the same outcome that you have had in the past, which has caused banking issues. I have one message for the banks, which is that they give farming businesses time to turn the business around and prove viability. Often it takes farming businesses three or more years to change a system, and start to generate additional cash from the changes. Patience by bank recovery managers is needed, and I am concerned that this may be in short supply. My message to farmers and bank managers is, quite simply, get to know each other!