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Bank Reviews

Written by Ben Morton on . Posted in News6.

Bank Reviews

If you’re in business and have any kind of commercial lending facility with significant debt (generally upwards of $1million), you would be familiar with Annual Bank Reviews.

Most people tend to break out in a sweat at the mere thought of an upcoming review – if for no other reason than it feels like an extra hassle in your already busy day. But remember it’s not personal. Annual business reviews are basically a financial health check of your business so banks can minimise their risk and ensure you are able to continue servicing your debt. It is also something bank managers must do to update their records, comply with duty of care and due diligence requirements

Here at Rural Financial Counselling Service, we talk to many agribusiness operators and business owners who have lost too much time and stress to bank reviews. But annual reviews don’t need to be difficult.

Here’s our top tips for a stress-free annual bank review:

1. Embrace the process
Although the process is simple enough, a business loan annual review can be a nerve-wracking experience especially if you had a bad year. Banks are notoriously risk-averse and don’t always see the goodwill in your business as you do. But this is your chance to show them. You may not have all the answers or know exact data on every front, but this is about selling yourself and showing the bank you are a serious businessperson so they will want to continue to do business with you, and committing to a practice of due diligence that satisfies their regulatory authorities.

2. Be proactive
You may be surprised to know that the clock or calendar is ticking on your year from the minute your bank approves your loan, and not 12 months from the date it is made available. For some people this could be a difference of months. It pays to check as it may come round sooner than you think.

3. Give yourself plenty of time
Banks typically give 90 days’ notice for a review, but don’t wait for them to contact you. Call and ask when 12 months is due and lock a time in the calendar that works best for you. An annual business review can typically take anywhere from 2-3 days and you’ll want plenty of time to organise paperwork and put in place workarounds in your business for the time you’re dealing with the bank. Make sure the timeframe for preparation is achievable and meets your business needs and those of your accountants. You don’t want to be preparing for an annual review in the middle of harvest, nor the middle of EOFY.

4. Know what to expect
If you’re uncertain what to expect from an annual review, ask early on. Most banks can provide you with an outline of the process, plus your obligations to them and likewise theirs to you.

Whatever you do, don’t try to duck or avoid a review. Even if you’re not feeling particularly confident about your business performance over the past 12 months, it’s best to face the review head-on rather than raising a ‘red flag’ on your customer profile.

5. Be prepared and gather as much information as you can.
Identify exactly what your bank requires and give them all that plus some (our checklist of documents is a good place to start). Ensure all paperwork is current, clear/well prepared and aim to be as transparent as possible. If you’re feeling uncertain about any aspect of your business, spend time before your review getting to know the details and how your business has been performing. Prepare explanations for any issues or variances in actuals versus budgets or predications. Consider and document your business goals, plans and contingencies for dealing with unforeseen changes in circumstance. Do what you can to put the lender at ease and maintain their focus on supporting you in your success.

Refer to our checklist of documents likely to be requested. And if you want some assistance to put your best foot forward, talk to one of our experienced team at the Rural Financial Counselling Service who can step your through reviewing and updating your business goals, plans and budgets.

6. Be open
Now is not the time to keep your cards close to your chest or pretend that everything is ok if it’s not. The end goal for your bank is a full understanding of your business and how it’s performing. Remember, bank managers are people who respond favourably to honesty, transparency and open communication. So, anticipate questions, prepare notes and tell your whole story.

7. Use the review to your advantage
It’s not all about looking back at the year that was. An annual review is a great opportunity to look forward with your bank or lender and ensure you’ve got the right financial supports in place to achieve your success.

8. Ask questions and conduct your own review
Ensure your review is as much for your benefit as it is the bank. At the very least, you need to make certain that you’re being ‘serviced’ appropriately for your business needs and goals.Remember to:

  • Contact your bank prior to your review to flesh out any pain points for you or potential issues for them
  • Review the different types of bank products to ensure that you are on the most cost-effective facility (banks are always changing their fee structure)
  • Ask for your rates to be reviewed
  • Ask for feedback about your annual review– What does your servicing look like? What is your equity position? Are there any identified areas for improvement?
  • Ask for any information the bank has uncovered about the sector/industry in which your business operates
  • Insist on a thorough discussion of any Letters of Offer to ensure you understand what you’re signing.

9. Ask for help

If you’re not sure about the information you’re being asked to provide, it’s not up-to-date or you’re worried things don’t look so great, chances are you’re not alone and there is help available to you.

Enlist your accountant in the process, potentially even in the review itself. And reach out to a financial specialist such as one of our Rural Financial Counsellors, who can help you prepare for the review and work through any concerns with your financial situation.

The Rural Financial Counselling Service is a free of charge service that provides you with access to a unique team of financial counsellors with knowledge across banking, agribusiness and a broad range of other industries.

We can guide you through annual reviews, negotiations with your lender and other financial and business concerns, including goal setting, business plans and action planning. We’re an independent and not-for-profit organisation with your best interests at heart.

With nothing to lose and plenty to gain, jump on our livechat below or call 1800 319 458 to talk to somebody.

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Written by Ben Morton on . Posted in News6.

Stay close to your cashflow during Covid

Stay close to your cashflow during COVID-19

Our small business clients are located from the coast to the far west of NSW, but all are experiencing the impact of COVID-19 in varying degrees on their cashflow.

Last year we had a dress rehearsal of what COVID-19 does to client cashflows when small businesses shutdown, just as many areas are doing again. What lessons did we learn to be better prepared for the next shutdown?

  • Stay close to your customers. Loyalty or trust capital is hard to earn but very easy to lose. Your regular customers are probably hurting as much in their own life as you are and want an excuse to stay in touch or better still, keep buying from you. Social media is the inexpensive gift that allows you to keep and develop your customer relationships. Provide your customers with every opportunity to engage with you through your website and your preferred online channels.

 

  • Stay close to your creditors. If making payments on time is a problem contact your creditors, suppliers and ATO before they contact you and negotiate revised payment terms. Also access any support that the larger service providers (utilities, insurers, landlords) may be offering. If a creditor is not as understanding of your situation as you would like, then contact the free and very professional mediation services of the NSW Small Business Commissioner to find a middle ground solution.

 

  • Stay close to your bank. Banks are more approachable for small businesses than a few years ago and during COVID-19 most offer a more flexible lending approach to clients with COVID-19 impacted cashflows. Clients may be offered special arrangements such as deferring loan repayments but always ask the question: if I defer repayments will it have a negative impact on my credit rating. This could mean that any future loans you apply for may attract a higher interest rate margin than would otherwise be the case.

 

  • Stay close to your accountant. The trend for COVID-19 government grant applications is that they want to compare, for example, your turnover decrease during lockdown to previous periods. To spread the responsibility around they often require your accountant to now provide written assurance that your interim accounts on which your grant application is based on, are accurate. It is very important to keep your monthly accounts online, inputted and up to date so your accountant can quickly and confidently support your grant application and lodge your tax returns.

 

  • Stay close to your monthly results. If you have several activities in your business work out which one makes you the most profit. Do you know? We have access to benchmarks to assist in analyzing your business. Apportion overheads across each activity to determine which activity makes you the most profit.

 

  • Leverage your cashflow when times are better. Easier said than done, but many regional businesses, particularly in agriculture and tourism have done well in the last 12 months. Did you use the opportunity to pay down debt, negotiate a lower interest rate, release a family guarantee, or decided to sell your business at some future date. Be nimble and question every premise your business is based on.

  • A cashflow is even more important in lockdown. Lockdown may mean zero sales, but most expenses don’t stop. Keep completing a monthly cashflow even if income is zero because those expenses will still need to be paid at some stage. Keep the financial details out of your head and on a spreadsheet. It makes for a much better night’s sleep to know exactly where the financial speed bumps lie ahead for your business so that you give yourself time to work through solutions.

  • The government giveth and the government taketh away. No matter how stretched your cash flow is never be tempted to apply for a government grant that you can’t back up with accurate financials. Even through Services NSW might be under pressure to get the COVID-19 grants out quickly to small businesses, in later months when the dust settles, their auditors will check the grant payments for ‘integrity’. This is what happened with the bushfire grants and some small businesses had to repay the grant 12 months later due to poor back up paperwork or worse. Don’t let that happen to you.
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Written by Ben Morton on . Posted in News6.

75k Disaster Relief Grant

Primary producers affected by bush fires can now apply for a Special Disaster Grant of up to $75,000 to help pay for recovery costs thanks to a joint initiative by the State and Federal Governments.

 

Deputy Premier and Minister responsible for Disaster Recovery John Barilaro said primary producers affected by fires need support to get back on their feet as quickly as possible.

“Our farmers have been facing drought, dust storms and ferocious fires and this money is critical to keep farmers on the land and give them hope for the future.

 

“Emergency services and volunteers, including many impacted primary producers, are outstanding in emergency situations and we need to make sure we are as vigilant in recovery as we are in the face of disaster.     

“The last thing people need to worry about at the moment is filling in forms. That is why we have made this a streamlined process with minimal paper work so people who need money, get money with minimal fuss,” he said.  

Minister for Agriculture Adam Marshall said by simplifying the application process, affected primary producers would benefit from an immediate injection of recovery funding.

“Putting money back in people’s pockets as soon as possible will allow affected communities to focus on rebuilding and repairing crucial infrastructure, treating, euthanising or burying livestock, as well as buying much-needed fodder, and for orchardists, replacing netting and trees, knowing that costs will be reimbursed up to $75,000,” Mr Marshall said.

“This also means that primary producers who may have already accessed up to $15,000 under the scheme can now apply for additional funds, bringing the total available to $75,000.”

“The fires have caused significant damage to our primary producers across the state and affected everyone from beef and lamb producers, horticulturists, dairy farmers, apiarists and oyster growers.

“This support will bring some much needed relief and help put people on the path to recovery.” 

The Special Disaster Grant is administered through the NSW Rural Assistance Authority (RAA) and available to eligible, fire-affected primary producers within Category C declared Local Government Areas (LGAs) since 31 August 2019.

To apply for the Special Disaster Grant visit www.raa.nsw.gov.au or call 1800 678 593 to speak to the RAA. Service NSW Service Centres are able to assist producers with information.

This assistance is provided through a joint Disaster Recovery Funding Arrangement between states and territories and the Commonwealth Government.

For a full list of Category C declared LGAs please visit https://www.raa.nsw.gov.au/disaster-assistance/disaster-recovery-grants/bushfires

You can apply through the Rural Assistance Authority website:  https://www.raa.nsw.gov.au/disaster-assistance/special-disaster-grant-bushfires/special-disaster-grant-bushfires

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Written by Ben Morton on . Posted in News6.

RFCS Services delivering better outcomes for NSW farmers

RFCS Services delivering better outcomes for NSW farmers 

Following one of the toughest 12 months on record for regional communities, the Australian Government recently announced the ten providers that will deliver Rural Financial Counselling Services to farmers across Australia from July 2021 to 2024. Minister for Agriculture, Drought and Emergency Management David Littleproud said that the competitive tender process, ‘allowed the government to select proposals that will strengthen this trusted service and drive better outcomes for clients.’  

One of only two service providers to extend their service region was Rural Financial Counselling Service NSW Southern Region (RFCS NSWSR) whose service footprint will extend to the central region of NSW from 1 July. Executive Officer of RFCS NSWSR David Galloway said, ‘securing this result will allow us to help more farmers and small business owners recover from the recent barrage of natural disasters and economic shocks and build a clear plan for the future.’ Outgoing CEO from the RFCS Central Region Jeff Caldbeck said, ‘we are working closely with RFCS NSWSR team to minimise any disruptions to clients through the changeover period. Importantly, with this change comes the certainty that there will be more counsellors on the ground in the whole region.’  

The Rural Financial Counselling Service has been helping primary producers in need for more than 30 years. ‘We look forward to continuing this work in the southern and central regions of NSW to support a more sustainable, resilient and profitable primary production sector,’ said Mr Galloway. 

 

For more information about the program and announcement:
visit awe.gov.au/rfcs

RFCS NSW Southern Region 1800 319 458
Media Contact RFCS Southern Region:
Rebecca Peel: 0429 377 969
This email address is being protected from spambots. You need JavaScript enabled to view it.

Rural Financial Counselling Services are funded by the Commonwealth and State Governments. 

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Planning for profit

Written by Ben Morton on . Posted in News6.

Planning for profit

Knowing how much income your farm needs to generate is an important question for farming success but it’s not always an easy one to answer.  A basic understanding of your farm’s income, expenses and your profit target is a good starting point.

The formula for success

Your farm income must cover all the running costs of the farm to produce a farm profit (or loss). The farm’s profit is what pays back loans, pays taxes and is available to re-invest in your business as well as pays for your living expenses.

So, to answer the question “How much income does the farm need to make?” it is sometimes better to first determine how much profit is required to pay for these things. Having a profit target helps to understand the size and type of business you need to produce the income you require.


We can use this simple formula below:

Farm profit target = Farm income – direct expenses – overhead expenses

Direct expenses are directly attached to farm production systems. For example, shearing costs for a sheep enterprise or chemical costs for cropping. Once these direct expenses are deducted from income, we have your farm’s gross margin.

Overhead expenses are the ones you cannot avoid and are attached to the business whether it is producing or not. Examples include insurance, council rates, permanent workers, administration and accounting costs and vehicle registrations. Once the overhead expenses are deducted from the gross margin, we are left with farm profit. This is our target.

One of the challenges of working through this equation is that often the numbers don’t add up –your profit target cannot be met because there is too little left once direct and overhead expenses are deducted.

Some of the reasons may include:

  • The farm is too small and cannot produce the required income
  • Direct or overhead expenses are too high
  • The expectations of the business are too high.

Where the expectations of the business are too high, the business may be performing well but it can’t (and won’t) produce enough profit to fund all the that is asked of it.

How to determine your target profit

When determining target profit, it is best to lay it all out on paper to ensure you include every expense, including living expenses that you are looking to support.

Include items such as living expenses, medical costs, holidays, debts, capital investments on-farm, school and university fees and don’t forget to include a little extra for ‘other expenses’ that unexpectedly but inevitably pop up each year.

If you’d like help working through a budget of your own, a RFCS Rural Financial Counsellor can guide you via phone or in person (where COVID restrictions permit).

Profit planning – can it be done or are we asking too much?

Now that you understand what your target profit is, the planning process can be relatively simple. Your past financial records may show if you have a track record of generating this amount of profit. Looking forward, some simple budgeting, either by yourself or supported by your local Rural Financial Counsellor, will determine if the current scale and type of farm business is enough to meet the target profit.

Of course, seasonal variations in yields and commodity prices have a big influence on the outcome. The lack of certainty of these factors makes it tempting to skip the planning process. However, the small amount of time and effort it takes is worth it to have outlook and confidence in decision making.

It’s important to note that financials prepared by your accountant aim to reduce tax and so deliberately play down the financial performance of the business. As such, you may need to be carefully interpret your financials to get the real story of the business’s performance. Also, in your budgeting process, it is important to use average production and market prices so that you do not over or underestimate the capacity of the business.

Remember, if after detailed analysis the target profit is unachievable, a realistic plan may need to include work off-farm to reduce the pressure from the business and provide for the needs of the family.

 

Goal and strategy setting – how to identify short and long-term actions for generating income and reaching your target profit

Goals are the best way to identify what matters in our business. They determine where you are going to focus your time, energy and resources. Often, people start with broad or long-term goals like “To generate enough profit to cover all expenses and grow wealth for our family while operating our farm in a safe and sustainable manner”.

The values expressed in a broader goal like this will help define the limits and opportunities of the business, so these need to be well-considered. For example, if being certified organic is part of the goal, then the boundaries are clear for your business straight away.

However, following on from your broader goals, it is important to set SMART goals – specific, measurable, attainable, relevant, and time-bound. These SMART goals are usually shorter-term and will help drill down into the specific activities needed to reach the broader goal. Generally, there will be several SMART goals for your broader goal.

A SMART goal may be to “Understand the individual gross margins of each crop and livestock enterprise in the business, and to assess against industry benchmark gross margins within the next six months”.

The wrap

Having a target profit and a plan to achieve it will not make it rain or increase market prices. However, it will provide the framework to better understand the options and opportunities available to your business and make timelier and ‘bigger’ decisions more confidently. It helps lift you out of the detail to focus on the bigger picture and what can and needs to be done to improve your financial situation.

And remember to reach out to your Local Financial Counsellor as a second set of eyes (and use of their skills and knowledge) can be a huge help to start the process for your farm business.

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