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Tips for surviving the recession
FARMING has traditionally proved better capable of weathering a financial downturn than many other sectors, but many farms have diversified businesses such as bead and breakfast which could begin to 'feel the pinch.' We put a few questions to John Simpson of Montpelier Chartered Accountants. The company is a specialist adviser to the food and farming industry.
As a small business reliant on seasonal income, how can I maintain cash flow?
Agriculture is weathering the recession better than some industries, but it is certainly not immune to the downturn.
It is unlikely there will be many times in a business’s life when managing cash flow is more important.
The basis of good cashflow management is having a system with regular, up-to-date information, either in terms of balances at the bank or how much of an overdraft facility is unused.
An up-to-date cash flow of how bank facilities will change in the next week, month, quarter and year should be kept on spreadsheets or easy-to-use accounting software.
Using automated cashflow systems makes it simple to change assumptions if, for example, a sale is delayed or market prices drop.
I'd like to expand, but bank finance is an issue. Are there alternatives, or should I wait?
As with all businesses, the length of borrowing should match the economic life of the asset being financed.
Long-term bank loans should be considered for funding the purchase of land or buildings, with medium-term loans or hire-purchase agreements used to fund plant and machinery or breeding livestock.
Bank overdrafts are often ideal for funding working capital such as trading stock, feed, fertiliser and machinery running costs.
Even in today’s economic environment, banks do see a well-run farm business as a lower-risk opportunity and are keen to lend.
Banks are certainly looking to obtain a higher margin on lending, hence rates are often slightly higher than before.
Can I claim tax back from past years if my firm makes a loss after several healthy years?
A Yes. If your business is making losses, these can often be offset against your general income for the current and previous year.
Additional loss relief is also available if your business has started up in the past few years.
HM Revenue and Customs recognise fluctuations in farm profits by allowing farmers to average profits when calculating tax. This can be a very valuable concession to farmers and an accountant should be able to offer advise on its use.
I’m concerned my business is struggling to survive. What can I do to stem the tide?
Many small business owners will do anything rather than admit they may be heading for trouble.
If a business is in financial difficulty, the problem needs to be confronted right away.
It is much easier to turn around a business by dealing with problems early, rather than waiting until it has almost hit the rocks.
Early communication with your bank manager is vital during a period of low income and high borrowings. This will help retain the confidence of the bank during this difficult time.
Are there ways to cut costs internally?
AThe first things large companies do when business is bad is to make “internal efficiency savings”. The same is true for small businesses, from changing bank to switching utility, phone and broadband suppliers.
What is the outlook for my diversified business?
A well-run farm is still an attractive proposition to banks. It is quite possible diversified businesses such as holiday cottages, B&B’s and caravan/camp sites will be hardest hit.
Many of these diversified businesses are based around the tourist industry. With the recession, it is likely the public will cut down or cut out their holiday spend.
On the other hand, with the poor exchange rate, many people may decide to holiday in the UK this year rather than abroad. This is an area where we will have to wait and see.
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