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Tips for working effectively with your ag lender, part 2

Last week we talked about cash flow, sensitivity analyses and liquidity and how those matter when working with your ag lender. This week, lets go over the importance of a business plan, communications and productive assets.

Business Plan

The objective of the Ag Biz Planner learning experience was to complete a written business plan. A plan that contains goals, production, marketing, and finance details can go a long way in building confidence with your lender. On a side note, this is not only for young producers, but for tenured operations as well. Producer participants indicated the business planning process assists in answering the critical questions that are put down on paper as a guide.

Communications

One CEO indicated that lenders tend to be paranoid, worrying about the worst that could happen. Utilizing the business plan, touch base with your lender and discuss projected cash flow or tests for financial sensitivity. These can be great vehicles for communication of goals and aspirations as well as showing progress from year-to-year.

Productive Assets

The most seasoned CEO pulled me aside and mentioned another gem: Make sure to tell the individuals to invest in productive assets, that is, assets such as land, livestock, machinery, and human assets that will generate a positive bottom line. In his years of lending, he has learned a business can quickly get sidetracked with non-productive assets, i.e. killer toys such as vacation homes, high priced vehicles, and withdrawals from the business for personal purposes. Yes, everyone needs to enjoy the fruits of life, but keep it in balance.

This is some great wisdom from the CEOs. With the changes occurring globally in markets, prices and costs, these attributes will be a top priority for 2015 and beyond.

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