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ARTICLES >> Working on your Business

Building a Profitable Bank Relationship

Posted by Bestprac on Oct 30 2012

by Liz Guerin

Murphy’s Golden Rule states that whoever has the gold makes the rules. It was a rule that, in the 1980’s and early 90’s, many banks followed with their agricultural clients and this has resulted in many producers harbouring feelings of dread and distrust when faced with the prospect of dealing with banks (and bank managers).

Steve Radeski from the ANZHowever, Steve Radeski, State Agribusiness Manager, for SA and NT, with ANZ said that angst between banks and producers has changed and if it hasn’t, there is a problem with the current bank that they are with. He says that the key to a profitable bank relationship, like that of any relationship, is good two-way communication.

“Both the industry and banks recognise the need to work much closer together. We are in a volatile environment –in terms of funding and also in terms of the market in which producers operate,” he said. “It is global and changes quickly. Unless communication is effective and proactive, problems can arise.”

Ideally a partnership between the bank and the customer is formed, where the customer sees value in the partnership and the bank supports the customer in performing, to their capacity, within the confines of what we know is agriculture.

“Whether you are buying a property, or you foresee issues with your cashflow, you don’t ring the bank the day before you need assistance - you involve the bank as early as possible. And, equally, from the banks perspective, we need to keep the customers informed. We have access to substantial research and products and risk management strategies which can support the business and personal objectives of our customers.”

With the advent of agribusiness units, banks have a greater understanding of agriculture and its inherent volatility. Steve said that whilst neither banking nor farming is ‘rocket science’, what they do need is a strong commitment and passion for the industry.

“We make a 15 to 20 year generational investment in people, so whilst we think and act long term, we still need to think about some of the short term imposts on our customers’ business how we manage them.”

Steve says that there is an incredibly strong and bright future for agribusiness, with the ‘feed the world’ mantra a reality. However, businesses wanting to take advantage of this need to be able to manage the volatility that will inevitably occur over the short to medium term, in particular to be in a position to take advantage of those opportunities.

One of the things banks look for is the thinking behind the decisions that people make. And what producers need to do better is look at a range of ‘what if’ scenarios and build strategic plans around those situations.

Steve Radeski talking with Bestprac members“It is more than just looking at averages because, in reality, averages don’t happen very often. We look for producers who ask themselves ‘what if we don’t get 2 tonne next year and the price has dropped to $180, or equally, what if you get 4 tonne at $300?’” Steve said. “It is about considering the peaks and troughs, that we know come with agriculture, and considering your investment decisions based on the ‘what ifs’ and the trigger points that go along with them.”

Steve says that a strategy goes a long way to easing the decision making process.

“It becomes a lot harder when you are trying to make those decisions under pressure. If you have already made those decisions and know what the trigger point is, for the implementation of a particular strategy, it becomes a lot easier,” he said.

One of the critical aspects for producers is ensuring that the governance aspect of their operation keeps pace with the growth of the business. It is also important to maintain a focus on all aspects of the farming operation, including pre-farm gate (structure, finance, insurance etc), on farm (productivity gains and operational efficiency) and then also post farm gate (the way marketing is undertaken), as losing focus on any one can have a major impact on overall profitability.

“As a business grows and becomes bigger, or more complex in terms of turnover or structure, the governance sitting behind it also has to change. Financial acumen and strategic direction for agribusiness sometimes lags and we are seeing a lot more of our customers use external boards or people to give an independent third party view of the business,” Steve said.

“Multi-million dollar businesses need to be treated as such and, in particular, match the attitude to risk needs to also reflect the capacity of the business to absorb that risk.”
 

Last changed: Nov 01 2012

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