The operating credit requests are rolling in fast and furious this time of year. Annual line of credit renewals are due and in order to get a sense of what you need, banker types need three key pieces of information — previous income tax statements, a net worth statement and budgets and projections for this year. The more complete and precise these statements are the more likely you’ll get the type and level of credit that suits your farm’s needs. As you collect this information, you’re likely to come across items that you’re not sure where they belong. Keep a list of questions or uncategorized items handy and bring it to the meeting, too.
INCOME TAX STATEMENTS
The “where you’ve been” statements are your income taxes or previous year’s financial statements. Make certain that your account manager has at least three years of records. This allows them to paint a historical picture of the operation to measure your projections against, as well as to calculate the average amount of income available to service debt payments and interest.
NET WORTH STATEMENT
Your net worth statement is arrived at by listing assets and liabilities; the difference between assets and liabilities is your net worth. List your assets first and their actual market value. Your account manager knows that your 2002 Dodge half-ton has depreciated since you bought it and so do you. Find a realistic current market value. Assets are listed from most liquid (starting with cash) to least liquid (ending with land and buildings). List everything you own and remember that leased items are not usually considered your asset until the lease is paid out. Operating and capital leases are different — check with your lender about how to list these.
List cash, savings, GIC/term deposits, marketable securities, RRSP, pension plans, patronage shares as assets. Current grain and forage inventory, livestock inventory, farm supplies on-hand, prepaid inputs and any accounts receivable are also assets. Create a complete list of your farm and non-farm related equipment. Next on the list is land, buildings and any quota you may have. The liability side of the net worth statement is listed in a similar way. First, list all operating loans, accounts payable and credit cards, then list your cash advances and lease payments. Next list your term debts and mortgages along with their payments and interest rates. The net worth statement is a snapshot of where you are — financially — right now.
BUDGETS AND PROJECTIONS
The “where you’re going” statement includes annual budgets and projections. Base them on your own farm’s historical figures, as well as what industry norms are. Err on the side of caution and be conservative. Nothing makes an account manager feel warm and fuzzy like a conservative budget, with the exception of cash collateral perhaps.
The more detail you provide the more informed your account manager is and the better they can help you make good financial decisions. Now is the time to mention that you may need to borrow to purchase a new piece of equipment later in the season. They can work that into the review process and have a faster response when you are ready to go equipment shopping. Be sure to mention if you’ve taken on more land. Maybe you’ve been adding a quarter here and there over the past several years and haven’t bothered to increase your operating line of credit. It may be time to look at something like that. If you find you’re running short of cash regularly, perhaps a farm debt consolidation is needed to get you back on track instead of increasing your line of credit.
There are many ways your account manager can help your farm finances run more smoothly. Be open with them about your current issues and goals; they can at the very least offer sound advice on where to go from here — whether that’s a new loan or simply paying down existing ones.
If you need some help with creating a farm budget or projections for new ventures, there are excellent templates available online, such as the Manitoba Agriculture, Food and Rural Initiatives FarmPlan located at www.gov.mb.ca/agriculture/financial/farm/software.html
to help you budget for the coming year.
Robin Christian Blythe is one of those supermoms we all strive to be. She farms in Manitoba’s Swan River Valley, has a young family, is an ag account manager at her local financial institution and still finds time to write for Grainews.