The Good Ole' Boys' Club

The Good Ole' Boys' Club

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SW Financial Literacy

The Good Ole' Boys' Club

Will Bankrupt You...

Laughs, drinks, friends, and maybe a few cigars. The good ole’ boys' club exists in a lot of different ways. You see it at the country club, bars, tailgates, and anywhere people meet to have a good time.

This isn’t just for fun. The club exists in business as well. Friends and business partners get the insider scoop and special deals no one else is privy to, making them millions. If you aren’t a part of the club, you will never have access to these benefits.

There is another place where the good ole’ boys club can be found. Banks.

When your grandpa, dad, and now you have banked with the same local bank working with the grandpa and dad of your current banker, you start to feel invincible. Add a few of your 4th generation farming neighbors to the mix and you have a club.

And why shouldn’t you feel invincible? After all, for 60 years the family has kept the farm afloat and found its way out of tough spots. You make the bank money, and they help you grow. You scratch their bank, they scratch yours. What could go wrong?

I don’t get very many calls to take over someone’s farm operating Line of Credit during good years, but after 2-3 tough years I can’t always fit all the calls into my schedule of people wanting to move their business.

What happens?

Undisciplined lending

After those 1-2 tough years, financial positions dry up and cash on the balance sheet becomes scarce. You still have loan payments to make from the equipment and land you bought during profitable times. Things aren’t looking good, but lucky for you… The club comes in to ‘save’ you!

The bank terms out your losses over 5 years. No worries. You will pay it back, you always have. The problem is your cash flow was negative before this extra payment for losses was put in place. You keep operating like you always have, the problem has been fixed.

1 year later and all that cash is gone again. Not to worry, we can fix it just like we did last time!

WRONG

Suddenly your ‘club’ member is being told ‘no’ in their loan committee meeting when reviewing your loan request. This balance sheet is really bad. In fact, the bank owners know ag is struggling and have decided to exit several of their farm accounts. Your ‘club’ member must let go of their 5 worst financial accounts. Your Line of Credit is shut off with your legacy bank and you are told the bank is simply ‘reshuffling’ their accounts and unfortunately they won’t be able to work with you anymore.

Don't let the club bankrupt you.

This is when I get the call. We review the financials, I let them know how bad it really is, and they are shocked. They knew things were tight, but had never received any coaching or constructive feedback on how toxic their spending habits and financial problems really were. I decline their loan request, as we wouldn’t keep an account this bad, let alone bring in a new account without an existing relationship.

This farmer ends up getting their operating funds at a high-risk lender for 11% interest. They can only get the loan if they restructure all debt with the high-risk lender at these interest rates.

1 year later they are selling a farm to just make interest payments.

1 year after that, bankruptcy. And finding a job in town.

This is not fearmongering. It doesn’t always lead to bankruptcy. I’ve seen it countless times, this is not just a one-off situation.

The point is, if you aren’t getting regular financial feedback and coaching from your lender, you are putting yourself at major risk of losing what has been built up for generations.

Don’t be naive about your financial position. Get out of the club and run your business like a business.

Have a great week!

Grant