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Call the bank before the bank calls you

Your Farm Business

May 20, 2011
From Wayne Schoper and Rich Baumann - South Central College , The Journal

There is no denying that the dairy industry has struggled financially for the past few years. In California, it has been reported that 99 dairies went out in 2008, 100 closed shop in 2009, and 37 were gone in 2010. Many Minnesota dairies have also ceased operation in the last couple of years, including several in our area.

Skyrocketing fuel and feed prices don't paint a very rosy picture for 2011, despite fairly steady milk prices.

This financial climate probably makes you dread meeting with your bank or avoiding your banker altogether. But this is the wrong strategy to weather hard times, say financial professionals. This is true for whatever segment of agriculture you are involved in.

"You probably don't feel like seeing your banker if you're feeling financially squeezed, but the more you know about your financial situation, the better," says Riley Walter, lawyer and workout specialist with Walter & Wilhelm in Fresno, Calif. "Knowledge is power."

If you're in a financial bind, it may not feel like you have any options available to you. But there are always options. And, more options are available the sooner you address your financial situation.

If you're seeing a build-up in accounts payable, the bank is ratcheting down on your ratios, or the margin between milk and feed is narrowing, it's time to see someone, says Larry Mapes, former banker and financial specialist with HRMacklin in Visalia, Calif.

It may be in your best interest to meet with a lawyer who specializes in insolvency prior to meeting with your bank. "Find out what your rights are before you meet with your banker," explains Walter. "Just coming in and meeting with an insolvency professional and having the process explained to you can change the course you're on." A lawyer can also help educate you on the right questions to ask your bank and what information to present.

Yes, it does cost money to meet with a lawyer but it's at a much lower cost than losing part of or your entire operation, agree Walter and Mapes. Addressing your financial situation early on can also help to protect key creditors.

Once you've visited with an insolvency lawyer, then talk with your bank. Ask bank represenatives if they can restructure notes to provide relief. Discuss steps that can be taken so your farm doesn't slip into a worse situation.

While it may be an uncomfortable process to address your financial situation, it may save your whole operation.

Do not meet with the bank blind, says Walter. Understand the options available to you; know that some decisions may have severe tax consequences. "Make sure you're not creating a bigger tax problem financially than you were facing," notes Mapes.

It is an absolute last resort for banks to take away what you have. "Banks have no interest in running, owning or taking away your dairy," says Mapes. "They will help you, but it's when communication unravels that you will have problems."

Develop a plan to get your business back on track. A Farm Business Management instructor can work with you to look at your options and help you develop a plan that can work for you and your farm business. Contact Wayne at Sleepy Eye or Rich at New Ulm to discuss your situation, whether you are now in a serious financial situation, or to assure that you don't get into this situation.

Swallow your pride and get some help, advises Walter. Don't wait until the bank takes your milk check.


(Much of this information is from Dairy Herd Network, April 29, 2011.)



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