A lender participating in an agribusiness financing workshop stated that the balance sheet, income statement and cash flow can be great communication tools in the loan relationship. Let's examine this important concept of financial management and drill down on this perspective.
I completely agree with this lender’s view, specifically as it relates to communication between the agricultural lender and the borrower. Setting time aside quarterly or annually to review the financial statements can be a great method of maintaining communication. This level of transparency and communication can enhance the side-by-side relationship between the lender and the borrower.
This proactive strategy can often lead to tactics that can circumvent financial issues or position the business to take advantage of opportunities. Also, this strategy allows for another set of eyes on the books, which can verify and challenge thinking that can result in short and long-term success.
The financial statements can also be a great communication piece in working with your team of advisors. This team may include your accountant, financial planner, lawyer, or crop and livestock consultants. Financial statements can act as a box score of game results to summarize your financial performance.
Periodically reviewing financial statements can allow one to zero in on the adjustments that need to be made before embarking on other opportunities, tax strategies or building a nest egg outside the farm business.
The most important communication piece is often with family members or business partners. The key here is to occasionally sit down and take a closer examination of results. Next, make sure that family owners and stakeholders periodically have an opportunity to thoroughly understand the financial statements.
The responsibility, accountability and skill base surrounding farm financial statements need to be transmitted to the next generation. Financial accountability needs to start young and early to prepare the next generation for success.