So, you’ve survived the downturn. Cost structures are down, stocking rates are too. Many farmers marvelled at the extent to which they were able to make changes to their farming operations in order to get through, but what does this look like going forward?
You will have also noticed increased oversight and input from your bank during the last two years, and with good reason. Equity has eroded through the funding of losses, farm values may have reduced and break even payouts are now higher due to the increased interest bill. Banks are wanting to know what the next few years look like, and are increasingly looking for farmers to take control of this themselves.
Internally, banks are facing increased pressures on allocation and cost of capital. Due to the downturn, many dairy farmers are out to the riskier end of the curve, which means that they will be facing potential interest rate increases, but also banks will be less interested in funding those that can’t present themselves as quality businesses or that they can’t get a suitable return on. This poses a greater risk to your business than it ever has before.
So it’s really important that you take control of your business and ensure that you have a sound understanding of your financials, your strategy and how to execute on it. It’s also important that there is an element of independence to the thinking, and that there are advisors who are able to challenge key assumptions and ensure that all aspects are covered to ensure you have access to stable funding, and the best terms, conditions and pricing.
As you work through your budgets and strategy, consider the following questions;
- How well do you understand what changes you made to your operational model? Which changes will you keep longer term, and which ones were temporary?
- How do your budgets line up with what you have been able to do historically?
- What’s your track record like with your bank? Have you been able to deliver the results that you have budgeted in the past, or are there often significant variances?
- How well do you understand where your credit rating sits with your bank and what you can do to influence this?
How well you understand the above will have a significant bearing on how the bank grades and prices your debt going forward. It may even influence whether or not the bank continues to provide funding.
If you’re scratching your head wondering how to answer these questions and position yourself as best you can with your bank, you may benefit from an independent specialist such as NZAB. This is what we do, we help you to gain control of what is likely to be the single largest cost in your business. Give us a call.