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KEEP TALKING: In business, as in life, it is almost always better to address a problem earlier rather than later. Banks and creditors want to work with you to make payments, so talk to them early.

How to weather financial storm

Legal Matters: The most profitable businesses are laser-focused on reducing expenses.

By Blake Knickelbein

It is no secret that these are trying times in the agricultural industry. There have been at least three years of low milk prices. There is a substantial surplus of milk, and some milk plants are turning farmers away or placing quotas on farms. Farmers are struggling to make payments, and some are liquidating. While times are tough, the sustainable farms will be able to survive. Hopefully, this article provides some guidance on how to weather the storm.

In business, as in life, it is almost always better to address a problem earlier rather than later. The longer you wait to address financial difficulties, the less control you have over your financial situation. If you fail to make payments to a bank, the bank can foreclose the mortgage it has on your land or the security interest it has in your personal property. If you fail to make payments to a supplier or other creditor, that entity may pursue a judgment against you.

The bank or creditor now has most of the control over your financial situation. Your real estate would be sold at a sheriff’s sale, where you have no control over who buys your land. If the land sells for substantially below market value, there may not be enough to pay the bank loan or any money left for you. When assets are sold quickly, there is a greater risk that they will be sold below market value. 

However, banks and creditors do not like foreclosing on customers. Foreclosures cost banks money, and they risk not receiving enough money to satisfy your debt with them. Banks and creditors want to work with you to help you satisfy your payments, so talk to them early. Set up a payment plan that allows you to satisfy at least part of your monthly payments. Some banks will set you up with interest-only payments for a period of time. Making at least some monthly payment to them is better than nothing and can buy you some time. 

Small gains add up
Many times, what separates the top businesses from average businesses is limiting expenses. The most profitable businesses are laser-focused on reducing expenses. The professional cycling team Team Sky has won the Tour de France five of the last six years. The director, Dave Brailsford, instituted an “aggregation of marginal gains” concept in which he believed the team could excel by improving every aspect by 1%. The team even changed the pillows the riders slept on and brought their own bedsheets to hotels.

During tough economic times, constantly look for ways to reduce your expenses. Analyze every single expense you have and determine a way to reduce that expense by 1%. Those small gains will add up to a significant reduction of expenses.

While everyone has pride and feels some level of embarrassment when they have financial difficulty, swallowing that pride and addressing the problem early improves your chances of weathering the storm. Sticking your head in the sand and hoping everything will be fine leads to foreclosure actions and bankruptcy. Often when we meet with clients, we find that if they had come to us six months earlier, they would have options, but at this point, their course of action is dictated by the bank. Again, many farms will pull through this tough stretch, but you need to be proactive to be one of those farms that survives.   

Knickelbein is an attorney in the Chilton, Wis., ag law firm Twohig, Reitbrock, Schneider and Halbach S.C. Call him at 920-849-4999. 

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