Why does this make us shudder?

This is the opportunity to showcase your business.

We encourage the farming audience to leave nothing to chance in the bank credit process. Numbers on a page with no narrative provide no context and create the need for assumption.

In its simplest form, we are missing the justification and rationale behind the numbers, but it’s deeper than this. The budget is a living document. Significant preparation and constant critique go into formulating the output, allowing it to adapt to the environment in front of us.

The importance of the budget in the credit process

We have explained in detail in prior articles how a customer credit rating is derived by the banks. At a high level, the three critical factors are the following:

• Personal Factor
• Balance Sheet/Bank Security
• Profitability metrics – both historical performance and future projections

The budget provides the reference point to the future aspect of the profitability metrics and your ability to meet your debt servicing obligations. Given the multitude of moving parts in a farming business, there is a high probability that the future is not a mirror image of the past. This places even greater importance on providing the justification needed to validate the numbers.

The strongest budget is not necessarily the one showing the highest profit. It is the one the reader can understand, test and believe.

What does best practice look like?

The budget and cashflow you present are the culmination of numerous strategic and operational decisions that you make.

The Macro Environment

The macro environment has the greatest impact on your business’s profitability. Commodity prices, interest rates and inflationary impacts all play a part.

We have been in a relatively strong position across most of our main agriculture commodities in recent times, but we know, based on supply and demand, these are cyclical.

Just last week we saw this come into fruition for the dairy industry, with Fonterra revising the midpoint of its 2026–27 forecast milk price down by 50c/kg MS. On 500,000kg MS, that is a $250,000 impact on your bottom line, before we have even produced a milk solid for the season. From a cashflow perspective, we have seen the opening advance rate reduce by 35c/kg MS, which has flowed through to a May, paid June, advance 45c/kg MS lower. How has this affected your profitability and cashflow?

The livestock industry is at risk of leaving more to chance here. On-farm productive output varies from farmer to farmer and, without solid rationale, an industry-average productive variable will be applied, such as finishing weights. This can make all the difference when illustrating what good versus great looks like.

Inflationary pressures are a constant variable across our sector, especially with our reliance on imported goods. We have seen this materialise in the current season around fuel prices. From a budgeting perspective, no two approaches will be the same and, depending on the timing of finalising your financial plan for the year, this could be conservative, optimistic or somewhere in between. What approach have you taken to the fluctuating prices and, more importantly, do the readers know?

This month we saw the first increase in the Official Cash Rate, with The Reserve Bank signalling that some further tightening may be required. Firstly, understanding the impact this could have on your profitability, and clearly communicating how it has been allowed for in the cashflow, removes the need for assumption.

Being able to illustrate your knowledge and understanding of your business enhances confidence across your wider stakeholders. Breakeven points and sensitivity analysis are powerful decision-making tools and, when communicated, further demonstrate the proactive controls you have in place to support decision making.

Industry Benchmarks and Your Historical Performance

Your historical performance provides a baseline for how you have performed in the past. Overlaying relevant industry benchmarks allows you to understand where you are performing strongly and the opportunities that exist within your operation.

Benchmarks often are used to identify an area of opportunity. From here, it is explored in greater depth, often with support from professionals.

If the budgeted result is materially different from the previous year, clearly explain what has changed. This may include commodity prices, production, stocking policy, interest costs, capital expenditure or one-off items. The easier it is for the reader to reconcile the past with the future, the less room there is for assumption.

Use of Your Professionals – Their Output Forms Your Input

Across your business, you will have professionals and suppliers providing you with plans specific to your operational and business model. This can range from fertiliser and feed plans produced by your reps, through to tax planning from your accountant, and everything in between.

Take fertiliser as an example. This is one of our main inputs in commercial farming. If the end reader of your budget sees a number materially different to recent years’ spending, with no justification, a number of assumptions can be made, which leads to a lot of unanswered questions. In reality, the answer could be straightforward – significant capital investment in recent seasons, high baseline fertility levels, a different effluent approach, or another well-considered operational change.

We can’t emphasise enough the importance of showcasing this planning. It shows the proactive approaches being undertaken, which demonstrates control and decision making.

And just to be clear, the narrative doesn’t just mean commentary. It is a combination of tables, schedules and benchmarks.

There is also a growing role for AI in this process. Used well, it can help organise information, test assumptions, improve presentation and make the narrative clearer and more complete. But it also comes with risks. AI can produce confident but incorrect outputs, overlook important business context, or create a generic narrative that does not properly reflect the operation. It should be used as a tool to support judgement, not replace it. We will explore both the opportunities and risks of AI in more detail in upcoming articles.

Be Clear About the Ask

A strong submission should leave the bank with no doubt about what you are asking for and why it makes sense. Whether it is increased seasonal funding, capital expenditure, a land purchase, refinancing or simply the continuation of existing facilities, connect the request back to the strategy and financial capacity of the business.

Just as importantly, explain the key risks and the actions available if the season does not unfold as expected. A realistic downside scenario, supported by clear management responses, will often create more confidence than a budget that assumes everything will go right.

What’s in it for you when you get this process right?

The overarching outcome for the farmer when you get this process right is “Better Banking Outcomes”.

You strengthen your relationship with the bank through demonstrating control and removing the need for assumptions. This, in turn, results in a more consistent approach towards your business around bank appetite, resulting in better access to capital, better terms and conditions, and better pricing on interest rates.

You are already doing this out in the paddock. This is making sure it is known and, in turn, ensuring you get what you deserve for your business.

How can we help?

At NZAB, with our deep understanding of the bank credit process and approach to presenting a farmer’s business, not just providing the numbers, we consistently see the benefits our clients are receiving through investing in this process.

If you or any of your peers in the industry would benefit from having someone on your side of the kitchen table to guide and lead you through this process, give us a call!