With the well-publicised delays in basic payment and the majority of agricultural commodities over supplied, 2016 is likely to be a difficult year for many farm businesses. Profits are under pressure and cash flows are likely to become increasingly difficult to manage with many producers already at or over existing overdraft limits.
Never has it been more important to plan the next 12 months, constructing realistic budgets and detailed cash flow forecasts. Given the circumstances it is unlikely that this will make for the best reading, but a detailed budget will clarify your financial position, any need for further bank assistance and highlight potential high cost areas that should be targeted going forwards.
Bank managers are always happier to receive detailed information on which to base their decisions and these are likely to come back more positively and more quickly where a plan can be seen.
In terms of farm performance there are a number of areas that should be considered when constructing your budget and cash flow.
• Efficiency of farm production
• Enterprise expansion and marginal production
• Review of overhead costs
• Opportunity for new income streams
• Timing of capital investment
• Capital repayment and repayment holidays
By including all relevant parties, setting targets and monitoring progress, substantial improvements can be made in a relatively short timescale.
Once a plan for the next 12 months has been completed it is worthwhile taking a step back to have a look at the bigger picture. The outlook for UK agriculture is positive but price volatility is here to stay and you must develop a business strategy that is comfortable in this environment.
There are farming businesses that simply ride the volatility rollercoaster making moderate profits during periods of high price and just scraping through the tough times, with no long term strategy. The future may appear bleak at present but a full review can bring surprising options that will make a big difference to the viability over the next few years.
Not having goals and plans can be the source of much stress and anxiety for those involved. By stepping back from the coal face and reviewing both your personal and business objectives it is possible to design and implement a strategy that is capable of trading successfully during difficult periods with profits really thriving when prices are high.
A medium term business strategy may only involve subtle changes to the existing business or alternatively could be a complete U turn on farming policy. It must be driven by those currently involved but also considerate to the likely needs of future generations.
The Thomas Westcott Agricultural Team have a wealth of experience in helping farming businesses with both short and medium term planning and we are happy to offer a free initial consultation to anyone interested in discussing these matters further. If you would like to explore any of these matters further or to book an appointment please do not hesitate to contact one of our team at an office to suit you.
For further information and advice contact Agricultural Consultant Jack White
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