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So far, 2020 has presented many tough challenges and obstacles for farming businesses. Whether you gain your income from a traditional agricultural enterprise, a rural diversification such as holiday lets, or something else entirely, risk management has probably never been so vital. We have many conversations with our clients about implementing strategies to help manage risk and protect their businesses from tough times.

What should you consider when producing a risk management strategy for your farming business?

 

Have a budget in place and monitor it
  • Cash is king. Aim to retain as much as you can as a buffer against volatility in input and output prices, yields, and other unknowns.
  • Be aware and keep track of any lending terms and renewal dates. Keep your bank manager or other lender informed of pinch points.
  • Look at sensitivity analysis. For example, what happens if milk prices fall, or harvest is down by a certain percentage?
  • Having clear and detailed financial information will enable you to have prompt and easy conversations with your bank.
Look at ways to reduce risk
  • The Coronavirus pandemic has triggered changes to existing rules and created many new ones. Keep up to speed by reading reliable information sources and take advice from us when you need it.
  • Consider fixing, buying forward or linking to output prices for major inputs such as feed.
  • Take advice regarding inputs that will be impacted by Brexit negotiations, including feeds and fertilisers.
  • Fix any borrowing rates so you always know how much you will be paying. Consider any repayment holidays if available.
  • If your business employs foreign workers, changes to their rights and currency movements have to be dealt with to retain staff.
  • As the Basic Payment Scheme (BPS) falls away, look at new environmental schemes to compensate for the shortfall in income.
  • Improve efficiency by removing any ‘sacred cows’ that don’t earn their keep or don’t justify the time.
Consider switching to online accounting software

Online accounting software can bring many benefits to your farming business by allowing you to:

  • Access a real-time overview of your finances, from any internet-enabled device, at any time.
  • Easily raise digital invoices and receive quick payment to help improve your cashflow. For hay or other retail sales, it is common not to unload until you’ve been paid.
  • Pay bills online saving you time and unnecessary stress. You may be able to ask for lower prices in return for quick payment.
Review non-essential payments such as:
  • Is that piece of kit needed? Is this the best price/cheapest finance/ best tax outcome? Ask us to check the tax position on significant purchases.
  • Can you spread payments for any costs such as sprays, fertiliser and insurance?
  • Are you able to make planned capital repayments or can they be delayed?
  • Review all partners’ drawings and other payments to family members.
Maximise your income streams

Make sure that your income sources are being maximised. Think about whether or not you are using every asset and everyone’s skills effectively. Be open to new ideas that could save you money such as machinery sharing, labour sharing and joint ventures. Ask us for advice on any tax implications before acting.

Consider business insurance to protect yourselves

We have a dedicated Independent Financial Adviser who can suggest the best life insurance and business continuity insurance to protect both your farming business and your family.
Looking on the positive side, where there is a challenge there is also opportunity. We look forward to a future where innovative and exciting businesses, committed to training and lifelong learning for a skilled workforce, will be at the forefront of the UK meeting global challenges.

Do you need help with your farm or rural businesses finances?

Every rural business is different. We can help you to put a plan in place to mitigate the most crucial risks for your situation. We will ensure that you are maximising your tax-free allowances and exemptions and can advise you on spreading the risk with new income streams through diversification.

We would be delighted to help you

Get in touch with Helen King on hking@ellacotts.co.uk or call 01295 250401 to discuss your situation.