As commodity prices have tumbled, the focus on finance, marketing, and risk management has become a top priority for producers. Recently over 250 farmers, agribusiness persons, and lenders attended the Mid-South Agricultural Finance Conference at the University of Tennessee – Martin. During the conference, an intriguing question was raised for the speaker panel, which included Richard Brock, Dr. Steve Isaacs of the University of Kentucky, Dr. Freddie Barnard of Purdue University, and myself. A producer asked, “How often should farmers and lenders communicate during the year, particularly during the planning season?” The following is a summary of the panelists’ responses.
First, many financial problems can occur when there is limited or no communication between the borrower and lender. In today’s world of economics with bigger numbers and more volatility, finances can get out of hand very quickly. Signs of issues are when accounts payable build up, operating lines are not paid down, profit and loss statements go in the red, and cash flow becomes negative.
A best management practice amongst progressive producers is to have your lender on your advisory team and meet quarterly to assess the projected cash flow compared to actual results. This is often called variance analysis. Maintain an agenda of these meetings with written minutes as a track record that can be referred to determine if the business is on a sustainable path. The meetings need to be away from the farm to avoid distractions and include spouses and partners that are critical to the strategic direction of the business and overall operations.
A key point that the panelists made was producers need to have organized records and accurate financial accounting. This, in turn, results in productive meetings and efficient use of both lenders’ and producers’ time. In our dairy creamery business and dairy farms, we have developed financial and production dashboards that the lender, owners, and managers can use to quickly assess financial direction and take corrective actions for improvement, if needed.
In summary, the panel recommended having a meeting during planning season, followed by a quarterly or semi-annual assessment, with a year-end evaluation which is imperative to determine financial success.
Another best management practice related to communication was observed at this educational event at UT-Martin. Many bankers, Farm Credit lenders, and agribusiness persons sponsored producers to attend this educational venue. Discussion and networking at the meeting and during the commute back home can be a great opportunity for communication after listening to thought-provoking speakers.