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As you think about meeting demand and sales projections for next year and beyond, it’s tempting to want to move ahead quickly with plant and equipment expansions or upgrades. However, before you begin spending money, it’s important to consider the financial impact these decisions will have today and in the future.

Determining the right time to finance capital improvements can often mean the difference between success and a very stressed cash flow situation. When you review your actual performance this year and projected performance next year as well as cash flows for the next several years, you will find the best time to take on new term debt. This review should also include your tax situation, current repayment schedules of existing loans, working capital required to fully utilize expanded capacities, interest rate considerations and other anticipated changes to the business in the near and intermediate term.

Headshot courtesy of UMB Bank

By maximizing your cash flow availability and matching it carefully with required payments, you can manage your cash needs more effectively. By doing this, you can also make better quality decisions as to financing your capital needs going forward. This can include the ability to prepay debt in good years and stretch amortizations in more challenging years.

This year was the “poster-child year” for cash flow problems experienced by many growers. For most, shipping orders were changed significantly due to abnormal spring weather across the country. These changes put pressure on working capital and forced many growers to alter their anticipated loan structures at a very inopportune time. Flexibility is the key to successful capital financing. The right banking partner can help you look at various loan structures to design the one that best fits your needs, operating requirements and anticipated growth.

Your bank should be a key partner in working through these calculations alongside you. When selecting a banking partner, be sure that they understand your business, capital needs and that they are willing to communicate with you directly about your needs — and not just about the bank’s requirements. Most importantly, be sure your banking partner represents a relationship that you feel confident in working with through the challenges that are sure to come in the days and years ahead.

William Watson
President | Agribusiness Division
william.watson@umb.com