Focus for the Future

With everything that is happening in the world creating a lot of uncertainty for both individuals and businesses, it’s more important than ever to ensure you are taking all the steps you can to ensure the future of your farming business.

As input costs continue to increase and the cost of borrowing soars, we need to put measures in place to minimise the risk of unexpected costs arising and putting further pressure on what may already be very tight margins. 

In this article we will look at some common areas that can often be overlooked by farmers, which, with a little time invested now, could generate cost efficiencies in the long term.

Partnership Agreement

If operating as a partnership, then a good partnership agreement is key to ensuring the future of the business and its assets. The agreement can cover numerous areas of the partnership’s operation, such as profit shares, salary levels, what happens in the event of a partner’s death or retiral, etc.

Without a written partnership agreement, a partnership will fall under the terms of the 1890 Partnership Act. In short this means that changes to the partnership, such as the death or retiral of a partner, or dispute amongst partners, will lead to the partnership’s assets being sold and the business being wound up.

Benchmarking

Whether done as part of a formal group or within a group of farming friends and neighbours, benchmarking and sharing ideas can prove hugely beneficial. Comparing your own costs and returns with those of others in similar farming set-ups allows you to identify areas where you are performing well, but equally aspects of the business that could perhaps be improved. You can then look at what others are doing differently / successfully and consider whether these ideas could be implemented to improve the business’ profitability. 

Forecasting

When decisions are taken to invest in new machinery or buildings, to expand the flock or herd for example, the initial outlay will be relatively easy to determine. However, it mustn’t be forgotten that often decisions to expand or diversify will come with added working capital requirements, therefore it is imperative that cashflow forecasts are prepared in order to ensure the business has access to sufficient cash to meet its day to day requirements.

This can also be used to support cash management as we all know farming is a cyclical business, and bank balances will often reflect that. If there are months in the year where bank balances remain in credit, now that interest rates are rising, it may be worth considering moving that money to a different account that pays more interest, until such time as it is needed. With good forecasting then this can be more accurately planned.

Finance and Credit

Very often, farmers won’t look beyond their existing bank when looking to obtain additional finance – this can sometimes mean the level of borrowing required cannot be obtained, or it’s perhaps too expensive. However, as with the purchase of livestock and inputs, etc, it is important to look at the available alternatives, compare interest rates, arrangement fees, length of credit and so on, as it may be that other lenders can offer you a better deal.

If you wish to discuss any of the points raised in this article, in relation to your own business, please get in touch with myself or your usual Rennie Welch contact.

Isla Young BSc (Hons) CA | Isla.Young@renniewelch.co.uk