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Twinkle in your lender’s eye

Set a goal to have your balance sheet updated in January each year.

In these challenging economic times, how can you put a twinkle in your lender’s eye? It is time to prepare your “renewal season readiness kit.”

First, set a goal to have your balance sheet updated between in January each year. This year, complete and update your livestock and crop schedules with detailed amounts and values. You may be required to provide serial numbers of your machinery and equipment and identification numbers for livestock. With more fraudulent activities concerning the reporting of assets and liabilities, additional details are being required.

Next, by January 15 the producer, not the lender, should develop a cash flow statement. This can be done on a monthly or quarterly basis with the best estimates of production, price, cost, and interest rate levels. If you are uncertain about the cash flow assumptions, use your past results as a guide. Financial and economic shock testing of the key assumptions can provide the critical pathways for the coming year. For example, you could test the worst, average, and best case scenarios in your cash flow statement.

Tax returns often are not finalized until March and April. If you can put together a cash basis income statement from the past year and adjust revenues and expenses as a result of changes in payables, inventories, prepaid expenses, receivables, and accrued expenses, this will be the icing on the cake! This is known as an accrual adjusted income statement. You and your lender can examine the income statement and the accompanying adjustments to better understand the past year’s performance. Which direction did these categories move, up or down? Did these categories change because of the amount or a change in valuation?

Next, provide your lender with your written short and long-term goals for one year and five years, respectively. This provides a sense of direction for your business so that the lender can better serve you.

Finally, set up a monitoring schedule with your lender, particularly for cash flow. Depending on your situation, this can occur monthly, quarterly, or semiannually. Today's economic environment requires constant tweaking.

It may sound like this article is slanted toward the lender, but these tips benefit producers as well. If you complete these tasks and monitor your performance both in the short and long-term, then you will improve your business IQ as a manager and your success during renewal season.

The opinions of the author are not necessarily those of Corn+Soybean Digest or Farm Progress.

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