You may have taken part in and/or read our recent report on the 2021 survey undertaken by the Rural Agricultural Group (RAG) of accountants which we published in August. The overall sentiment of respondents being ‘somewhat’ optimistic about the future of farming; but what are the concerns, where are the links and how, if at all, can the concerns be alleviated?
The five top ranked concerns in order are:
- Future of subsidies
- Environment, climate change and weather
- Cashflow
- Price volatility
- Tax
One of the main linking factors between 1, 2 and 4 is the impact they have on profitability. Profitability then impacts cashflow (3) and inevitably tax (5).
There is no golden bullet to resolve the issues facing UK farming - but things such as being prepared for change, being in a position where you understand your businesses strengths and weaknesses, knowing where your breakeven point is, will all help you make and implement sound, informed decisions.
As yet, there is no clear guidance on future subsidies and what will be required to qualify for these. We know it will not be ‘money for nothing’ and with the significant emphasis on the environment and climate change there will be opportunities for some, but not all farmers.
By ensuring your bookkeeping records allow you to identify your costs of production for each enterprise you run, you can start to balance out your cashflow requirements against profitability and price volatility. Some of the areas to think about include:
- What is the minimum price required to make a profit?
- When do you need cash and how much?
- When do you have significant outgoings?
- Can/should you forward sell?
- Do you need a seasonal additional overdraft facility?
- Do you need new plant and machinery, if so, when should you buy?
- What are the tax implications?
Many farmers suffer from sleepless nights, not only due to calving and lambing! Having a clear strategy, backed up with a business plan and accurate accounting records will at least provide peace of mind that you know where your business is doing well and where there are challenges to be resolved.