BANK CAN BE GOOD FRIEND FOR FARMER

24 December 1999

BANK CAN BE GOOD FRIEND FOR FARMER

British agriculture is facing the most difficult crisis in recent history. Farmers and their bankers

must work in partnership if they are to survive, says Barry Jones of business adviser KPMG

RECENT problems in agriculture – the beef ban, strong pound and falling stock prices – have put a significant strain on the financial resources of many farmers. Some of these seem likely to continue for some time.

For all farmers, gaining the support of their bankers is vital, particularly those producers who have lower-than-average production or heavy borrowings.

Farmers do start with an advantage. Banks involved in agricultural lending are very supportive of the sector. Most have a strong network of dedicated, trained, agricultural teams – something they generally dont have for other industries.

The farmer, therefore, has the advantage of usually dealing with knowledgeable people, committed to the industry. It follows that with all this investment, bankers are keen to see farmers through this crisis.

But banks are commercial organisations with a duty to provide a return for their shareholders. They cannot simply keep on providing assistance to businesses that cannot show that they are viable.

And banks cannot do their part unless they have the active co-operation of farmers; the two will need to work together as a partnership in order to avoid problems turning into disaster for both parties.

Farmers who come up hard against their overdraft limit and need extra support from their bank can make that support easier to obtain by following some fairly simple, but often neglected, principles:

&#8226 Talk to the bank.

&#8226 Provide up-to-date, robust, financial and operational information – not just historic financial accounts.

&#8226 Be open – dont produce any nasty last-minute surprises.

It also means having a business plan for the future and sharing it with the bank. Farmers wanting continued support, particularly those wishing to increase borrowings, will have to provide a plan which shows that the business is viable and that it can support the present, and any increased, levels of borrowings. The most successful businesses balance good cost control with sound, necessary investments.

A good business plan needs to be prepared following a thorough review of the farming enterprise and needs to be grounded firmly on the businesss past performance.

It is no use forecasting large increases in sales or reductions in costs unless a convincing demonstration is made that they can be achieved. This information needs to be presented in a form that bankers are used to seeing and can easily understand.

If the review shows the enterprise is not viable in its present form then a hard look at the business will be needed. Some major, and possibly painful, decisions may have to be made if the business is to be turned around.

If nothing is done then it is unreasonable to expect a bank to provide continued or increased finance. It may also not be sensible for the farmer to continue to risk investment in the equity of the business.

Some farmers may find the idea of producing this type of information daunting, but it is a vital business tool. Those who cannot prepare the information themselves should ask a financial adviser for help.

The chosen adviser should have a blend of both operational and financial skills, proven turnaround and business review skills. He or she should also have a history of providing information in acceptable forms to financial institutions.

Good advisors will provide assistance in developing a sound business strategy and an objective view of the business. They will add value to the business from their experience of similar problems and provision of solutions which are applicable to individual circumstances.

Undoubtedly, some farm enterprises will not survive the present crisis. These will include those who may be hopelessly over-borrowed and those which operated on the margin in good times. But there will be others that should survive but do not take the necessary steps to ensure their survival. &#42

PREPARING PLANS

&#8226 Be realistic.

&#8226 Spend time thinking about the future of the whole business.

&#8226 Be ready to make changes.

&#8226 Present plans professionally.

&#8226 Seek help where needed.