Plan Ahead to Relieve Cash Flow Difficulties this Winter

Many farmers could face serious cash flow problems this winter and must plan ahead to overcome pinch points, a leading accountant has warned.

“Farm incomes are under pressure in almost every sector, and with likely delays to the Basic Payment Scheme the next six months are going to be critical,” says Andrew Vickery, head of rural services at Old Mill. “People need to draw up accurate cash flow forecasts to understand where the tight periods are going to be and act early to overcome them.”

Andrew Vickery

Andrew Vickery

In some cases farmers may be able to delay outgoing payments or bring forward sales of stock, but it’s essential to keep the lines of communication open, he warns. “If you delay supplier payments ensure they understand that it’s a temporary measure, and pay little and often rather than not at all.”

Although banks claim to be sympathetic to the industry’s needs for additional borrowing, it is vital that farmers are well prepared, with solid financial figures to back up their request, says Mr Vickery. “Banks will generally look favourably on a business that has been well managed in the past and has a reasonable track record. You need to have robust cash flow forecasts to explain your needs, and give them plenty of notice to obtain the best rates.”

Farmers who wait until the last minute, and approach the bank with vague figures for an urgent overdraft extension are less likely to succeed, he warns. “Unfortunately, the farmers who have struggled the most in the past are likely to be the ones who need the most support now.”

Anyone who is turned down by their bank should ask why, and explore whether their planned budgets are realistic and accurate. “Is the business really viable with the plan you’ve got, or do you need to re-examine it?” It could be worth approaching a different bank – but avoid approaching lenders of last resort, as the interest rates are crippling and will soon spiral out of control, adds Mr Vickery.

“The cheapest form of borrowing will probably be to extend existing overdraft or loan facilities. Other options could be to refinance machinery with secondary hire purchase agreements, bring in funds from outside the business, or take advance payment on grain sold forward into pools, for example.”

Credit cards are unsustainable in long-term due to high interest rates, but zero-interest periods could provide short-term relief. “In some cases it may be worth selling off some assets or a bit of land to free up some working capital.”

In all cases mitigating tax will be beneficial, given the January 31 deadline for Income Tax payments, says Mr Vickery. “If you’re finalising March 2015 year-ends look at ways to minimise tax liabilities, perhaps by reducing payments on account. However, if you need to extend bank borrowings have one eye on profit levels – you want to present a robust picture of the business to your bank manager. If you have low levels of profit, perhaps through high repair expenditure, make a note of that to explain why.”

With the number of bank foreclosures on the rise, now is not the time to ignore future cash flow difficulties, he warns. “The key is forward planning and open dialogue. Working with your accountants and advisers presents a united front to lenders, and can help flag up strategic options for the business.”

Old Mill

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