Talking things through
If you feel isolated or uncertain about the future and you are not sure how to improve the financial performance of your business, share the problem with others.
Many people and organisations are willing to offer help, which, in many instances, can be free of charge. The key message is to talk about the issue sooner rather than later. Do not delay to the point where your health starts to suffer and you are unable to sleep due to worry. Remember the phrase “it’s good to talk”, well this rings true in these circumstances and applies to us all, as a problem shared can be a problem halved.
Many farmers do not like sharing financial information with others, particularly if business failure is a potential outcome. In these circumstances, talking to family and friends will be difficult, but there are others that you can turn to. The Farm Community Network has a team of volunteers that are experienced business consultants and are willing to give their time to help you. Professionals that already understand your business, such as your bank manager or accountant, are also likely to be good sources of advice. On a more positive note, if you are seeking to improve the profitability of your business, then an independent specialist agricultural consultant can help to guide you.
There are organisations who can help with advice and support, visit our support for farmers webpage for more information.
If you are thinking about making changes to your business, it's very important to talk to your family and business partners. For instance, do you know what your family members are thinking? Do they know what you’re thinking?
It can be difficult to have some conversations, but the long-term benefit will outweigh the short-term discomfort.
It is important that you tell your family how you are feeling and what you are thinking about with regards the business and any assets. Don't assume that because children work away they are not interested in taking the business forward, but be prepared that it might be in a different direction. Likewise, family members currently in the business may also be feeling the pressure of having to continue in the business but not saying anything.
Writing down your personal objectives for your future can help clarify the situation and aid discussions with your family.
- Succession planning for farmers and landowners - CLA
- Management of farmland can be crucial to agricultural property relief claims - Taxation.co.uk
- About Pensions Retirement Choices - Penions Advisory Service
- Farming Futures - NFU Mutual
- Tips on succession planning for farming families - FWI
- Farm succession: Planning for the future - SRUC
- An Australian perspective on sustaining families and farms
- Succession planning - FWI Academy
Regular dialogue and meetings with your employees is good business practice. Share with them your vision for the future and the changes that you are planning to help achieve it. Encourage them to feed in ideas of how your plan may be implemented in order that they also buy in to the changes that you wish to make. If they feel trusted and engaged, they are more likely to help the plan succeed and come to work with a positive attitude.
Discuss the team’s achievements and progress at regular intervals and review the next steps with them. If circumstances arise that prevent you from making the progress that you intended, share the reasons with the team and develop solutions together to help get back on track.
Don’t go through stress alone. Talk to your spouse and friends as a first step, then talk to your bank manager and other finance providers about your business. Talking to them early will often put you in a stronger position to ask for borrowing restructuring or repayment holidays.
Your bank manager should be concerned about the future profitability of your business, together with your ability to cover loan and interest repayments, private drawings and future capital investment. Although lending decisions are based on your net worth and your ability to service the loans or bank overdraft, this position can deteriorate over time, due to changes in profitability or following a series of challenging events. To help ensure continued support, keep the bank manager informed. Consider providing a copy of your audited accounts each year, together with your forecast of future trading income and expenditure and any major capital expenditure that is planned. It is far better for you to approach the bank and to discuss the period ahead, if any increase in lending is likely to be required. Try not to breach your overdraft limit until you have had such a conversation.
Contact your suppliers. Merchants and other creditors will want to keep your business and will be open to discussing how a repayment structure can be organised over a period of time to help.
Have you addressed paying the tax bill from the last financial year? Talk to HMRC about organising a payment structure.
The primary aim of the accountant is to prepare audited accounts for your business that are produced for income tax purposes and should help to reduce your overall tax liability. Good accountants will help to ensure that these are prepared as close to the year end as possible. They provide you with a summary of income and expenditure and this information will help you to benchmark your performance and to plan ahead for the next year. In many instances, audited accounts do not provide an accurate value of your net worth, due to historical land and building valuations or because the breeding livestock are valued on the ‘herd basis’.
The accountant will have a first-rate knowledge of all taxation issues. As such, they should be consulted for advice on any major business changes, for example, diversifying into non-farming enterprises, succession planning or when considering retirement. They will be able to make you aware of Inheritance Tax, Capital Gains Tax, Stamp Duty and Value Added Tax (VAT) issues that may affect you in the future.
A good consultant is likely to understand the challenges and opportunities that you are facing. They frequently have several clients that are wrestling with similar issues and can provide guidance on the steps that are required. They understand the physical and financial benchmarks that you should be aiming to achieve and are well versed in the preparation of gross margins, budgets and cash flows. Those that possess both technical enterprise expertise and business knowledge can dovetail these skills to help provide practical solutions.
If family members or business owners are not fully aligned, the role of the independent consultant will be to help gain consensus by providing analysis and information on which to make informed decisions. In some situations, the best solution may be to downsize or cease the farming activities and this advice may not be well-received by all members of the family. A consultant should add value to the business by helping to improve performance and profitability and, if so, this will provide a good return on the investment in their time.
British Institute of Agricultural Consultants (BIAC)
T: 01275 375559