Tripwire – What to do when the Bank says “Sell?”

To start, I’d recommend that you listen closely. They may be correct. However, many times I have found them to be off track in their assessment, or as I like to describe them, “Often mistaken. Never in doubt…” In just the last 24 months, I can illustrate three cases where, in contrast to this “Sell, sell, sell” liquidation strategy, we were able to get things back on track financially, to the direct benefit of the Client.

However, in all three cases cited above, the bankers had some very valid concerns. So, in all fairness, the best first step is to listen to their concerns and, of course, then consider the alternatives to selling by answering the following questions:

1. Can we turn this business around? Do you have enough Equity to get it back on track, in other words, is your business bankable? Quite often, in these turnaround situations, I find myself wishing I had been involved sooner, rather than feeling like Mariano Rivera, the famed “closer” who pitched for the New York Yankees for 17 seasons. The message here is clear – Don’t wait too long to make necessary changes.
2. If the answer to #1 above is Yes, then consider what it will take. Are these reasonable requests? Can the bank help us with these items? This can often present a “Win-Win” situation where your business gets fixed, and the bank doesn’t take a financial hit either. Believe me, the last thing they want is to foreclose on anyone. That is a costly process, and no one wins on those…
3. Can we & should we change the business’ debt structure? For example, can we move some of your Short-Term Debt over to Longer Term Real Estate Debt and still be within the normal Loan to Value parameters for the bank? Often, by doing this, we can improve your Cash Flow to smooth things out financially.
4. Should we trade some assets? Assuming your facility is large enough and your labor force can handle it, could you do the following, for example?
   1. Sell 100 Heifers for $72,000 & Buy 60 Cows for the same $72,000?
   1. Milk these 60 cows @ 75 lb X $16.50/cwt X 365 days = $271K
   1. Assume that we incur added Feed Costs of 60% of Milk = $(163K)
   1. Now, we don’t need to feed 100 heifers @ $1.50 X 365 = $55K saved
   1. Net Result is that your CF improved by $163K, and your Loan to Value on the Herd Loan did not change, since your added 60 cows with a bank value of $70-75K and lowered heifer values by the same $70-75K value.
   1. However, you dramatically improved your Cash Flow, and you can always buy more heifers later. They are still making them…
5. What other steps can you take? Are your Costs/cwt still in line with industry standards? If not, do something about them, and when the bank says to sell, be sure to consider all of your options. There is probably a way to make it all work. You just haven’t figured it out yet.

As Les Brown stated:

“If you set goals and go after them with all the determination you can muster, your gifts will take you places that will amaze you.”

Let’s take your business to the Next Level!