Editorial: Sensible move
OPINION: The Government's decision to rule out changes to Fringe Benefit Tax (FBT) that would cost every farmer thousands of dollars annually, is sensible.
Dillon says this increased level of contact isn't always a bad thing and proactive discussions between banker and farmer are an important step to take in dealing with the current financial pressures both parties are facing.
However, it can be intimidating for some and a recent Federated Farmers' survey found that one in 10 farmers were feeling an 'undue' level of pressure from their bank.
Dillon stresses a key factor for a successful banking relationship during these challenging times for the dairy sector is being well prepared with all the relevant information, 'being bank ready' as he calls it.
Dillon encourages farmers to take ownership of the relationship and says he has seen too many bury their heads in the sand and keep dealing with the day-to-day farming jobs, often too scared to look at the bigger picture.
Dillon points out that it's a risky game. "We know banks are being asked to fund another year of losses in many cases. They determine funding by assessing the risk profile of the individuals or business they are lending to. Farmers need to provide them with accurate information to form a clear picture of the farm's position and the confidence they have a plan to get through this.
"While there are a lot of risk factors beyond their control, such as the state of the industry, commodity prices, exchange rates and climatic conditions, there are plenty of risks farmers can mitigate against and thus help control their risk profile or at least provide their bank manager with some comfort," adds Dillon.
"Farmers need to take ownership of the risk factors they can control, and in a financial sense to do this they need to have an accurate picture of where the business sits in real time," Dillon says.
In what can be a rapidly changing market filled with a level of uncertainty, real-time information has become crucial; however, Dillon says in many cases farmers can be presenting their bank with information from 15 months ago, which has become of little use for decision making.
"Real-time cash flow analysis, forecasting and budgeting are vital in today's modern farming business. As things change farmers need to continually adapt their planning, allowing them to mitigate financial risk factors, control costs and make effective business decisions in a timely manner," Dillon adds.
This is where farmers can look to their support team for help, says Dillon. "They should consult their bank manager, business advisor or even an advisory board member to help pull out and make sense of the information they need."
"Farmers should challenge their advisors for help with budgets and forecasting and if they need to they should bring them to their bank meetings for support."
Banks do not want to see farmers out of business, but they do require them to work closely with their bank manager and keep them updated. Dillon also adds, "If your first plan does not work out, make sure you have a back-up plan. This could mean getting more equity from shareholders or selling a run-off block. Everyone will have a different plan, but regardless of what it is, everyone does need to have one."
