Thousands of farmers have descended on Balmoral Park for the start of the Balmoral Show – and the hot topic on many lips will be the financial pressures faced in many sectors.
Not only are many farmers’ incomes coming under pressure due to factors such as feed, fuel and fertiliser costs and competition from abroad, but they will now be looking at added market and support complications as Brexit looms.
But help is at hand – Northern Ireland wealth management company Johnston Campbell has drawn up a six-step action plan that will help farmers to put their business on a sound financial footing and prepare for an uncertain future.
Johnston Campbell spokesman Aidan Place says: “It doesn’t matter whether you are considering expanding or just intending to consolidate what you have – getting a good feel for your farm finances will always stand you in good stead.
“It will mean that you can figure out your strong points and weak points and what to do about them, leaving you ready to weather whatever comes your way.”
1. Make use of the tools available.
The DAERA online services website offers a suite of free online services and business tools that have been developed to meet the needs of Northern Ireland farmers and growers. They have been designed to improve and enhance various aspects of farm management and include tools such as Single Application Form & Maps, Entitlement Transfer Service, Aphis, EFS application, Farm Business Planner and Nutrient Calculators. You can also use www.netregs.org.uk for environmental guidance.
2. Write a sound farm business plan – even if you don’t intend to make any changes to your farm.
Your plan can highlight weaknesses in how you plan and run your farm. It should contain your short-term and long-term aims, a timescale for meeting those aims, who will carry them out and how you will manage the money. It should include financial forecasts, predicting what will happen when you implement your plan; your marketing and sales strategy; information about your management team and staff; and and operation plans, which is a description of the farm and how it is run.
3. Assess the viability of your business
If it is to be viable your farm needs to generate enough income to cover the money you draw for your own use; tax; re-investment; and repayments of any borrowing. Defra has published a useful leaflet called ‘Getting Started in Farm Management Accounting Part I: Using the farm accounts to point the way’ which will help you to use your profit-and-loss account and balance sheets to assess the viability of your farm, guiding you through the principles of basic accounting.
4. Convert your farm’s financial accounts into management accounts
Financial figures can be much more useful if you convert them into more detailed management accounts which will provide you with a more accurate picture of the business. Management accounts will usually include estimated rent against owned land; a cost against unpaid labour and will value livestock and crops on their market value rather than production costs. They will allow for comparison with similar businesses, to assess your strengths and weaknesses and assist in negotiations with banks, suppliers and buyers. Defra offers a useful step by step guide in the leaflet ‘Management Accounts for Farmers’.
5. Use benchmarking tools to see how you measure up
This is to help you to find out how your business is performing compared with other farms of a similar size and type, comparing your financial data, performance in terms of revenue, cost and profit and business results with other average farms. You may also compare your performance with farms in other European countries. It will help you to decide if there are areas of your business that could be improved perhaps by reducing costs or increasing output. Your financial accounts will need to be up-to-date to use the tool.
6. Protect yourself from the unexpected
An unexpected death or disability can be a huge milestone in the life of a business. With record levels of farm debts and squeezed margins, farms should look to protect debt to ensure continued viability of their business to the next generation – for example, choosing an appropriate life insurance package that can clear any debts upon the death of the farmer. You should also think early on about your exit strategy and plan for where your income will come from when you retire.