Bankers can help in tough times

Wednesday, February 20, 2008

by KATE PROCTER

"Your banker is your friend. Your banker is there to help you," Famme told producers attending a session on practical accounting held at a Ontario Pork Industry Council-sponsored conference recently held in London.

In spite of difficulties, Famme advises against bank shopping. "If you have built up a long-term relationship, don't jump ship," he says. "Your banker knows when you are in trouble," so talking about it can only help the situation.

What does Famme suggest producers keep in mind when dealing with banks?

• Understand your business – and not just the production side. Bankers want to know that producers are looking at financial results and thinking about the direction the business is taking in the long term.
• Be familiar with banking agreements such as covenants, guarantees, postponements and terms. Covenants are tests such as debt to equity ratio that producers need to meet. Ask bankers exactly how the ratios are calculated so you have a clear understanding of what the rules are.
• Producers in a corporate business arrangement should be cautious about giving personal guarantees. Once given, "bankers hate to give them up," he warns. If the bank insists on one, make sure it is for a fixed value rather than unlimited.

As producers consider the future, there are three main options at this point – stick it out, sell out, or consider other options, for example feeding pigs in the U.S. Famme noted one client opted to grow fewer crops and sell land in order to keep the barns going.

He says producers are starting to think about "drop dead" points — how much they are willing to lose before shutting the business down. For one finishing client that point will come if the Canadian dollar does not drop back to $0.90 by April. As silos become empty through April and May, Famme expects many pork producers will be hitting key decision-making points.

There are many government programs available now to help farmers get through the crisis situation. (For program information, visit Agricorp and Agriculture and Agri-Food Canada). Famme urges producers to make sure they are meeting program application deadlines.

He advises producers to keep all program correspondence and make sure the accountant gets a copy. Producers should also check their Cost of Production (COP) history. Many programs are using this as a base for calculating payments and there have been several instances of mistakes being made in calculating the averages, especially for corporations established since 2002, he explains. BF