Special management at the bank. Is that end business?

The dairy farmer's company where I was this week has been placed by his bank at Special Management. Together with his son, who partly has a job, he milks about 180 cows with robots in handsome buildings. There is a lot of land, most of it owned.

He is a valued relation of the bank. If there is something to do, he is always invited. He showed good grades for years and, in hindsight, grew too fast and got into trouble. Confronted with lower milk prices and problems of a technical nature, the results were disappointing. The current account was filling up, the bills were piling up and he couldn't meet all the obligations for the past few years.

It makes him sad. He says, "I'm way too heavily funded, it's going to be dead and this is the end of my business." An understandable reaction if you have been sailing with strong financial headwinds for some time. But the soup is not always eaten so hot when it is served. In most cases, Special Management is not the end. It is necessary, however, that the entrepreneur is prepared to take clear measures, to look in the mirror and to always maintain good communication with the bank.

Continue, but a little different
The dairy farmer must work on a financially healthy future with the Special Management specialist. In such a discussion you come to constructive and probably lively discussions. Both sides can express their concerns and then there is room for expectations and agreements for the future.

It is very important that in this phase the dairy farmer and the bank retain the same interest. That is continuity of the company. So keep going, but a little differently. If communication does not go well in this process or expectations are too far apart, the interests of the bank may differ from those of the entrepreneur.

Measures must be taken in a short time. Think, for example, of only really necessary replacement investments for a certain period and no expansion. Operational management, for example in terms of milk yield and feed and animal health costs, must also be critically examined and adjusted. Record everything in an improvement plan to the bank, in which it must be made clear that - in view of the scale of the problem and especially the mediocre state of affairs in the sector - no miracles should be expected.

I do it my way
Nevertheless, the status of Special Management gives a blow to the self-confidence of the entrepreneur. "Tell me honestly, do you think I'm a bad farmer? Because then I want you to say it." The dairy farmer is certainly not a bad entrepreneur. Together we determine that he wanted too much at once. Compare it with Hema: a very nice company with far too much financing.

Implementing the measures to get out of Special Management cannot be underestimated. It's a tough story. If they are not carried out well enough (eg under the guise of 'I always do it my way'), the partial sale of land may become an issue. Certainly now: half work is no work.

But if you go for it, there may be light at the end of the tunnel. Dare to make changes, make improvements, that's what it's all about. The financial reporting must be and remain in good order. Then you can immediately see how the company is doing. As Charles Darwin said 100 years ago, "it is not the strongest that survive, nor the most intelligent, but those who respond best to change."

Special Management, a new start
By making the right choices and approaching the matter in a structured and decisive way, self-confidence can grow. And the people of Special Management can act more relaxed. Discussions continue, but overall you get into a more positive mood. If the results continue to improve, Special Management can be abandoned.

A company can end up in Special Management for all kinds of reasons. Think of investments that got out of hand, animal diseases or suddenly declining turnover. It can happen to any entrepreneur and there is no shame in it. In many cases, a company comes out even stronger. Then Special Management is not the end of the farm, but a new start.

Peter Pals

Peter Pals is an entrepreneur at Farmers Funding & Advies and grew up on a farm. From his farming heart, he has decided to build up a business for business, financial and tax advice for agricultural entrepreneurs.

© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.