There has been a noticeable shift in sentiment amongst our farming clients in the last 12 months with more looking towards the future and how to protect their businesses with all the current uncertainty both in the UK and further afield. We thought it would be useful to share our thoughts on how farming businesses can best prepare and safeguard for the future.
Look at options for conversions of buildings, amenity uses of land or value-added processes to broaden the sources of income and be less reliant on one market. Many farmers have taken this approach already but it is always worth re-looking at income streams and ensuring an opportunity is not being missed. For example, letting buildings which are no longer useful to the farming enterprise could provide an income which would allow investment in new buildings. We are continuing to see strong demand for rural storage/workshop units across our area.
Consider whether you have any land which may be strategically placed for residential development. With increasing pressure on councils to meet housing targets, there could be a further window of opportunity for those with strategic land to secure development. If you are receiving approaches from developers, think about whether it is worth following them up.
2. Farm the right land
All farms have some land which is less productive or awkward for modern equipment to access. Look at yields and input costs on this land against the payments which could be received under Countryside Stewardship and other environmental schemes. If the income received under a scheme would be more than farming the land, this may be a better option than farming. Whilst there is growing interest in privately funded schemes under carbon and biodiversity net gain schemes, these are long term commitments that need to be carefully thought through.
3. Budget & stress test
Having accurate working budgets which are reviewed regularly provides an essential resource when considering cropping, machinery and manpower. Preparing a budget at the beginning of the cropping year and then forgetting about it doesn’t provide a useful tool for planning future years, so they must be reviewed frequently. We would also advise stress testing budgets at different yields, input costs and receipts so that all scenarios have been considered.
4. Financial considerations
Before purchasing new equipment, additional land or investing in improvements, consideration should be given as to how these are to be funded. Furthermore, thought should be given to how this may impact on future funding and the speed you are making repayments of capital, especially with hire purchase.
5. Evaluate risks
Each farming business should consider the threats it faces and plan accordingly. If the risks are known, consideration can be given to them before a situation arises. Key risks we consider when looking at farming businesses are:
• Commodity prices
• Input price changes
• Changes to land values and rents
• Reductions in subsidy payments and changes to environmental schemes
• Inspection failures
• Interest rate fluctuations
• Changes to ownership
6. Succession planning
Considering the future plans for the business at the earliest opportunity means decisions can be made with the eventual aim in mind. Whilst it can be a difficult matter to discuss between family or members of a farming partnership, having a robust succession plan enables all parties to work to the same end goal. There is no set format for a good succession plan, as every business is different. It does, however, need to deal with a number of key issues and points, including:
• A summary of the overall succession plan.
• A business overview and plan.
• A retirement plan for the older generation.
• A financial plan, detailing how the proposals will be funded.
• An action plan and implementable timetable.
Seeking professional advice at an early stage is vital; there are many factors that need to be taken into account, including tax and inheritance implications. Robinson & Hall is frequently called in to manage the process and liaise with accountants, solicitors and bankers to see the process through from the start of a plan to completion.
Whilst paperwork is everyone’s least favourite activity, it is not something which can be ignored in modern farming. Spend some time each year ensuring all the documents are in place and easily accessible
should you have an inspection, be it from the Rural Payments Agency, HM Revenue and Customs or Crop Assurance. Penalties received can be
large and can be avoided by having the right documents to hand when an inspector knocks on the door.
Whilst the current uncertainty in the financial markets, commodity prices and political outlook is concerning for farm businesses, it is outside most people’s control. However, with forward planning, strategic
thinking and due diligence, it is possible to make businesses as resilient as they can be for the years ahead.
For information or assistance on any of the above, please contact Polly Sewell.