January 25, 2022
Lender conferences and seminars are great venues for engagement. At the conclusion of a recent event, a banker presented a challenge, “I have attended your schools and conferences over the years. Your information and material are great, but much of it is academic. My producers refuse to complete financial statements, resulting in much of my time completing them for a loan request. If I ask them to complete the financial statements, they will go to the competition.”
What a disappointment after decades of working with producers and lenders!
A number of new agricultural bankers and lenders were in attendance, and I did not want to undo progress made over the years, so I allowed others in attendance to comment on the gentleman's response first. Whether it was for an operating loan renewal or a new loan request, many of the lenders commented that more of their farmers and ranchers were completing their own financial statements. Drilling down in recent years, the younger generation of producers typically has the attitude that completing their own financial statements is a requirement for managing debt and their own businesses.
Debate between individuals in the group became quite feisty. They were quick to comment that older producers with more equity were often the culprits to resist the financial statement requests. Others commented that in the past two years with record profits and lush government payments that some producers have resisted spending time with the financials. Some of the key lessons learned from the discussion are as follows.
Completing and understanding your financial statements is not only helpful in requesting a loan. The real value is when the statements are developed, monitored, and used as a management tool for strategic and day-to-day decision-making.
Strong economic times often get one into financial traps as a result of complacency and not adhering to the basic financial principles. American agriculture has just gone through such a period when land and asset value appreciation were icing on the profit cake.
Moving forward, inflating costs, volatile prices, and interest rate increases will require a stepped-up game plan for financial and business management. Many older producers with equity have a sense of security; however, if losses start to mount, the erosion of working capital and equity can quickly occur.
After all of the heated discussion, the banker smiled and said, “I gotcha!” He was looking for some energetic debate. He did tell his young bankers that were in attendance that he tells his customers, “If I complete your financial statement and you have financial problems, remember that I have your land as collateral!”
Source: David Kohl, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.
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