FinanceDo you feel like your bank has your back against the wall? If so, you are not alone. After working with over 300 family farm operations in the past five years, I can tell you with full confidence that many people feel this way. There are huge gaps in knowledge when it comes to understanding how the bank views your operation, interprets your numbers, and makes decisions. I’ve seen it firsthand.
If you’re tired of feeling this way—which I’d bet you are—then this is the blog for you. I’m going to go over three points that will help you rethink your relationship with your bank. By the end of the blog, you’ll have a better understanding of how the bank operates and how you can leverage this knowledge to your and your farm operation’s advantage.
First up, let’s talk about how you view your banker. There are two main ways you can look at them: as a partner in your business or as an investor. There is an extreme difference between the two, and how you view them completely changes how you approach conversations with your banker.
I spent six years as an ag banker, and I know that many bankers (including myself back then) like to say they’re partners with farmers. But here’s the truth: a true partner shares the risks and responsibilities. When I’m partnering with someone, it means they’re involved in daily decisions and taking on financial risks alongside me. But let’s face it—banks have collateralized risk—they can go after your assets if things go south. Your risk? That’s tied to your hard work and the success of your operation.
So, when you think about whether your banker is a partner or an investor, remember that they may care about your success, but they’re ultimately there to protect their interests. They’re not walking in the same shoes as you when it comes to financial risk.
Another misconception is viewing your banker as a financial advisor. In my opinion, bankers aren’t equipped to guide you on major financial decisions, especially when it comes to millions of dollars. As the business owner, it’s your job to know what the bank will think about your decisions before you even step into their office. You shouldn’t be looking for advice; you should be walking in with your own plan.
When I was a banker, I made a decent salary, but I didn’t have the expertise to steer someone through a long-term financial commitment. It’s essential to seek advice from people who are truly in the same game or even ahead of the game. Your banker should provide you with the information you need, not the other way around.
So, how should you approach your banker? Start by treating them as an investor. They’re responsible for deploying capital and getting a return for their shareholders. When you walk into that meeting, think about the information you’re presenting. Are you organized and detailed, or are you like most farmers who just scribble on a balance sheet?
Imagine if you were an investor and someone brought you a messy set of numbers. You probably wouldn’t feel great about giving them your money, right? By being organized and presenting clear, structured financial information, you’re not only impressing your banker but also increasing your chances of getting favorable terms and rates.
We’ve seen this time and time again with our clients using Farmer Metrics. When they present their operations clearly, they gain the leverage to negotiate better terms—saving them tens or even hundreds of thousands of dollars.
What type of information should you present? Are you bringing in completed tax returns, organized balance sheets, and monthly cash flow projections? Let me emphasize that last part: monthly cash flow projections. Relying on annual projections can be misleading when running a large operation because things change throughout the year.
We recommend that our customers update their financials every month and review their actuals to learn from their operations. This proactive approach means you won’t be scrambling for money when the time comes to borrow. You’ll have a clear picture of your finances.
Finally, do you know how banks operate in the lending game? When I transitioned from farming to banking, I realized there was a huge gap in knowledge. It’s not just on farmers; banks also have a responsibility to help educate their clients on how lending works.
If you don’t understand the lending process, it can feel like your back is against the wall. You won’t know what questions to ask, and you might feel overwhelmed during discussions. That’s why, at Legacy Farmer, we focus on helping you master your finances. We want you to know your numbers inside and out and understand how the bank will use that information in their decision-making.
