Managing the Realities of the Times: Borrower and Banker Teamwork - by Dr. David Kohl

I conceptualized this article on the back of my receipt while at a Five Guys restaurant in the Midwest. After a customer service snafu with no human to take my order at a Wendy's across the street, I discovered how inflation quickly consumed my $20 bill and my Abraham Lincoln on top of it at the Five Guys restaurant! Fortunately, I did finally receive excellent customer service. Reality has set in that the agriculture industry is in a period similar to 2013 to 2020 where there was a drag on profit margins. However, this time resilient inflation along with higher interest rates bring a sense of urgency and attention to businesses and the financial mindset of both the borrower and lender. This is particularly true in larger businesses with more zeros and commas on the balance sheet, income statement, and cash flow which can quickly turn a business’ financials in an adverse direction.

Process and turnaround

Managing the realities of tighter margins and increased volatility requires your “A” game with a plan that prioritizes strategies, execution, and monitoring. Let's draw on some of the wisdom and perspectives gained over the years working in the industry and our recent dairy creamery turnaround.

Dusting off the old playbook of realities, a cash flow budget can be a great tool in both the assessment and monitoring of the business’ financial position at any given moment. This is not a time in the economic cycle to be analyzing financials only once per year. Our practice at the creamery was to monitor our cash flow projections versus actual results on a weekly basis. While this may seem like overkill, a monthly or quarterly analysis of projections to actuals will need to be implemented even if you have annual income, like on a cow-calf operation, in order to track your expenses throughout the year. In doing so, we quickly moved to cash enterprise budgets to determine what products and divisions were making and losing money and to what extent.

Similar to the 1980s farm crisis era, a “minus mindset” was developed. How can we simplify the business by focusing on the enterprises and activities that are making money and identifying those that are compounding our losses? The ultimate “sniff test” was to focus on expense management without hindering long-term viability and continuity of the business. The cash flow statement is a powerful global business tool because it encompasses price, production, cost, and assumptions on timing of costs and financial obligations. These are all critical factors when the economic reality sets in.

Next on my Five Guys receipt is monitoring working capital and financial liquidity, which is the backup for profits and cash flow. A strategy to preserve working capital in these economic times will be a tall order. Many producers have built up considerable reserves in the mini-profit cycle of the last three years during the pandemic. It appears that the road ahead may bring negative margins which will start to deplete this backup nest egg. Determine what levels of losses will place the business in peril or require a lifeline through a debt restructure by the lender. If the lender does provide this bridge, the key is for the borrower to provide a written plan for profit and cash flow improvement based on realistic strategies and actions. If one is in the beef and livestock industry where profits are currently strong, it is crucial to build working capital from profits and revenue over the next few years. This will require a focus on the three-legged stool of profit management which is a balance between paying income taxes, making capital expenditures for growth, and building working capital.

Marketing and risk management

Now is the time to step up to the plate in your business concerning marketing and risk management. What plan and at what levels provide the best options to minimize losses? Knowing your breakeven point and cost of production at various production, price, and expense points is imperative in establishing the guardrails and the focus on strategy, action, and monitoring. In many cases, a “base hit” versus a “homerun” strategy can quickly seize pricing and cost opportunities and avoid losses or getting the business in the “financial ditch.”


More intense communications are required to manage through difficult economic times. A monthly meeting with the lenders and advisory team was a “golden nugget” in navigating the economic white waters in our dairy creamery. In some cases, online meetings were valuable in tracking the business. Regardless of the meeting location, all parties must have open minds, be allowed to provide input, and customize solutions to the business. Remember, there is no cookie-cutter approach. The situations, personalities, resources, and the business culture moving toward success are necessary for strategic actions to be executed.

Good communications with components of your business “A” game will be an important part of navigating the economic realities before us. These practices in place can position the business for success when the economic tide turns.


The Five Guys burger was great. I wonder what percentage of my purchase went to the beef producer? Also, the potato farm in Idaho where the french fries were produced was identified, but why not the beef operation? Next time you are at Five Guys, ask them!