Building Relationships to Propel Your Business

When one thinks of the path to opening a business, it can sound fairly straightforward – a plan is devised, which is then used to acquire financing, and off you go! Of course, it’s rarely this simple, and especially for farmers seeking to branch out into the world of Value-Added products, the road to obtaining financing must first be paved with good relationships.

A great place to start the discovery process is with a local bank with which you or your family have a history, matching up with a knowledgeable loan officer or business banker who understands your business pursuits. If your hometown bank doesn’t have expertise in your industry, it’s okay to interview other banks that do. Then, discuss loan product options. Standard installment loans with monthly payments are not the only kind of loans out there and may not be the best fit for a company that is still pre-revenue. Ask about alternate loan structures with payments timed to sync with your cash flows or have an interest-only period upfront while ramping up your business.

If appropriate, discuss lines of credit, which have more flexible terms that can more closely meet the needs of a startup business or newly-added enterprise. It is common for farmers with annual crops to access an operating line of credit for items such as fertilizer, seed, and insecticide at the beginning of a season, which then gets paid down after harvest. Farmers with livestock inventories that are constantly shifting up and down may have a variable line of credit based on current inventory value, called a borrowing base. This kind of flexibility can translate into credit facilities for retail or value-added processing as well.

An entrepreneur might access a straight line of credit with a fixed dollar amount ceiling, which allows them to make multiple advances during a project, such as renovating a storefront. Once the project is complete, the balance is converted to a mortgage or other term loan. Or, an entrepreneur might consider a revolving line of credit for operations, such as acquiring inventory or paying for labor, especially early on while sales are still growing.

Hill Valley Dairy recently expanded its business beyond wholesale and farmers markets, into its very own brick-and-mortar storefront. This took planning, relationship building, and the right opportunity to come together.

While living in Lake Geneva, WI for several years, Ron and Josie Henningfeld built relationships with local businesses that would ultimately partner with them in selling their cheeses. It was also during this time when Ron began working for a creamery that would eventually provide Hill Valley Dairy with rental space to launch cheese production operations. By starting small, making only 50lbs of cheese a week, and renting infrastructure to preserve cash, they were able to self-finance their growing business. After several years, they had expanded their operation to 500lbs of cheese a week, began producing award-winning aged cheeses, and moved closer to the family farm in East Troy, WI where they source their milk.

It was at this point when the Henningfelds sat down with a banker for the first time to establish a relationship and start planning the financing for the future of their business. They decided to open a retail cheese shop and then a cheese bar at two adjoining storefronts in Lake Geneva. They were met with understanding and flexibility from their banker and using a combination of business and personal equity for security, initiated a line of credit for the startup costs of opening their shop. These funds were used to finance updates to the space, equipment, and early operating costs such as labor and inventory.

Ron’s advice – don’t go at growing your business alone; build relationships with experts who can answer your questions (instead of you doing all the research and fundraising). This speeds up and improves business decision-making and sets the stage for success.

Ron Henningfeld began experimenting with cheesemaking in college, with a dream to make value-added cheese products using milk from the family farm. Now he and his wife Josie have built Hill Valley Dairy by fostering relationships with local businesses and bankers and making world-award-winning cheeses. Learn how they grew their business from curds to cave-aged and farmers market to storefront.

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