Advice on surviving an arable cashflow crisis
One way out of the cash flow squeeze is to promote land for development. © FLPA/REX/Shutterstock The farm cashflow squeeze can be tackled, but only with good data and proactive management.
This is the top line of advice offered by Philip Dunn, head of agribusiness at Brown & Co, at the Cereals Event.
Three key steps that should make up the process are: review performance, identify the problems and consider the options.
See also: Advice on managing cashflow challenge on arable farms
Only with a realistic and detailed budget can current performance be measured, problem areas highlighted and cash generation predicted. A sound budget also provides credibility if more funds are required.
However, too many farmers are naturally overoptimistic in their budgets about performance or cost, says Mr Dunn. Using assumptions based on historic performance, rather than updating or using actual figures, is another common mistake.
Arable businesses need to look at their biggest areas of spend to achieve the biggest savings, he said, and for most that means labour and machinery.
While fuel and fertiliser prices are down, there is massive overinflation in the cost of machinery.
“Comprehensive machinery and labour costings are also key to identify potential problem areas in what are the two largest overheads for most farm businesses.”
Rent – another big overhead for many – is reducing in farm business tenancy reviews, he said. “I think the market has recognised the reduction in the earning capacity of land.”
Diversification is again being considered by many, after a slight lull.
Brown & Co advice on main ways to ride out the cashflow squeeze
- Short-term fixes, for example locking down spending, negotiating loans, changing machinery policy or tweaking the business structure
- Alternative business models, such as contract farming agreements or machinery sharing arrangements, could also be set up fairly quickly, provided expert advice is sought
- Longer-term fixes could prevent a cash shortage from recurring. For example, for businesses that have the security and the ability to service the loan, money is available at about 4% for a 30-year loan
- New enterprises, perhaps with a third-party operator, are a further option. Examples include third parties being involved in renting or joint venturing where other skills and/or management time is needed. Examples include tourism, environmental ventures, commercial lettings and property development
- Letting areas of land for alternative enterprises, renewables or capitalising on planning opportunities could also help improve and smooth future cashflow, but should be considered carefully.
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