The author is an Iowa State Extension Dairy Specialist in Northwest Iowa based in Orange City. He can be contacted at [email protected] or 712-737-4230
Bankers tell me that as they progress toward annual reviews with borrowers, there are things that dairymen can do before the meeting that help make the annual task move smoother.
First, have your marketing and any expansion plans down on paper and make sure they “fit” your business plan. I’ve talked about having a business plan before and can’t stress its importance enough. On that same level is any capital investments or expansion plans- have them researched and on paper. Include them in your proposed cash flow and be sure to include additional related costs like additional insurance, maintenance, or labor. Know what is in your financials and understand how they depict your financial condition. These should include a balance sheet, cash flow statement and income statement. The cash flow projection should include “what if” factors concerning price, cost and capital acquisitions. The income statement may be the tax form, but an accrual adjusted income statement is preferred.
Remember, additional information on personal debt, especially credit cards, should be provided. It is also important to provide documentation to support your financial statement entries. Lenders are generally required to verify information such as account balances.
Second, understand how much financing you need for the upcoming year. Know the difference between wants and needs before you make your “ask” to your lender. They aren’t there when the cows are standing in 100-degree heat or you’re fighting equipment issues while feeding in sub-zero temperatures, so don’t expect them to know that the ventilation needs up grading to improve cow comfort or the feeder wagon can’t handle an extra 200 cows. Both investments may yield extra profit, but it is your responsibility to show it on paper.
Third, the meeting should not be adversarial, you’re a team. The borrower and lender have similar goals in that they want to ensure the long-term viability of their businesses and the successful relationship requires cooperation and professionalism by both parties. Remember that his decisions are derived from the information you provide; accurate and complete financial information gives him/her the ability to fairly review your “ask”. A good relationship is built on a mutual understanding of the business and it’s financial condition.
The Iowa State University Extension and Outreach Dairy Team has compiled budgets available to use. These budgets were prepared as financial decision-making tools to current and beginning dairy farmers. Budgets represent many variations of conventional, organic and pasture operations. They are available at: