Banking for uncertain times

When you think of the key business partners that you rely on in running your farming business, how many of you would put your bank near the top of that list? Many still consider the bank as a necessary evil rather than a “partner” in the business.

Access to finance makes up a significant part ensuring the ongoing success and continued growth of any farming business. As a result, it pays to put a high value on this relationship, making it is as strong and productive as possible. Ultimately, a proactive and strong banking relationship based on your business’s specific needs can help you save money through lower interest rates, but more importantly will ensure that you have access to appropriate facilities when you need them.

If you are making decisions to sell grain or make agronomic or strategic business decisions to suit cash flow, it is likely that you have not had the right financial facilities in place to run your business at its best. As owners and managers of dynamic farming businesses, you need to ensure that you have the tools, systems and advisors in place to allow you to proactively manage your businesses. However, you must also ensure that you have proactive banking and cash flow facilities in place to accommodate and implement any recommended and agreed strategies.

With global pressure mounting against some of the big-ticket costs of broad acre faming, such as fertiliser, chemical and plant and equipment, the traditional timing of their purchase is being significantly changed. Limited availably and rapidly increasing costs are driving a need to consider pre-purchasing and holding key inputs much sooner and storing them on farm for longer than ever before. When combined with ever present grain marketing challenges this will most certainly require another level of planning and decision making. For most businesses this will no doubt require additional cash flow funding therefore increasing the reliance on the bank, certainly in the shorter term.

Considering increasing land prices, historically low interest rates and increasing input cost pressures, unless you have reviewed your bank facilities for your farming business within the past few months it is likely they will need further review.

By working with your accounting partner (and other key advisers) to develop detailed financial forecasts and budgets before the start of the coming season, you will in the best position to confidently predict the cash flow and core bank facility requirements for not only the upcoming year but also the years ahead. This information allows you to proactively work with your banking advisers to communicate your known requirements and discuss the challenges and strategies in place to combat them should they arise.

Having the right bank facilities in place in the first instance ensures you have access to sufficient cash flow to meet the immediate day to day farming business requirements. Beyond this, ensuring these facilities are appropriately secured, with competitive interest rates or facilities to manage interest rate risks, and a workable loan repayment program is equally important over the long term.

Given the significance of the bank to most farming business, having a strong relationship with your bank, providing them with quality and detailed financial forecasts and proactively bringing them into the tent on your business strategies is critical to ensuring you get the best from your chosen banking partner.

If you are unsure where to start with reviewing your banking relationships or facilities for your farming business, it’s well worth making the time to discuss with your current advisors or feel free to contact one of our Perks Agribusiness Directors.