To give your banker confidence, you need to know where your business is now, where it is going and what you will do to get there.
This requires a plan and budgets which demonstrate business profitability (that the business will be able to meet its debt servicing commitments in the next three to five years) and liquidity (that your business has sufficient cash to meet commitments in the short run). You'll need to:
• know your financial position now - assets, debt and liabilities.
• have your cashflow budget for the current financial year - showing actual versus budget and updated to show year end position.
• know how your business is performing relative to others, and its relative risks. For example, are your farm working expenses, personal drawings and debt servicing costs relatively high?
• have a business plan, budget and cashflow for the year ending May 31, 2017. Then look at the opportunities to improve results using budgets for at least a further year, or more likely two, based on income projections agreed with your bank manager.
• look at medium term profit first - you and your bank both want to know your business is on track to be profitable. By looking longer term, you can consider changes to the way your business is set up and operated, as changes will take several years to take effect.
• seek expert advice and support, if you are planning significant changes. You will need to show your changes are considered, realistic and well planned.
Your banker can provide support and information but they are not advisers. This is your business and your banker needs to see you are in control of it and where it is going.
Know where you are
Use benchmarking such as DairyBase, available at dairynz.co.nz, to help you understand how you are positioned compared with past years and local benchmarks. Ask your banker, farm consultant and accountant to comment on areas where you appear to be out of line and address these in your business plan. It is also important to: