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Farmers advised to tackle cash flow issues before they escalate

A combination of lower harvest yields and lacklustre grain prices coupled with ongoing delays in SFI payments are raising the spectre of cash flow problems for arable farm businesses.

It is the latest headache to afflict the industry and having recently spoken to two high street banks it is clear there are a real concern about cash flow pressures on farm businesses. This is a direct result of the lower than expected crop yields and weak prices which are presenting real challenges for arable farmers heading into the winter months.

To mitigate potential problems it is vital that farmers take pre-emptive action to put their businesses on the front foot by starting early conversations with their banks, backed by a robust budget and realistic business plan.

My advice to farmers, who may face difficulties, is to take action now by preparing a budget and speaking to your bank before cash flow issues escalate. In my experience, banks want to work with farmers and support businesses, but if issues are left too long, they become harder to resolve and affordability can become a real problem.

Generally, if you are upfront and open it is much easier to work with your bank to find a solution which works for all parties. An early conversation with your lender may mean there is more time to formulate a plan which could involve securing additional lending, restructuring overall business borrowing or planning the management of an overdraft facility.

That is why being proactive and staying in regular contact with consultants, advisers and bank managers is key to surviving tough periods. Farmers who do this will be better positioned in terms of working capital, having secured early support from their bank.

The current situation facing farm business is the result of falling income at a time when costs haven’t moved. However, farm business now have the chance to carefully plan for the coming year, with the knowledge that understanding and managing costs of inputs, machinery and overheads is vital for maintaining profitability with low commodity prices.

Now may also be the perfect time for businesses to review their machinery cost of operations and grain marketing strategy and to think about the aims and objectives of the business for the future, both practically and financially.

For example, an in-depth assessment of machinery operations and associated costs may highlight areas of the business where costs could be saved, efficiency could be increased and capital potentially released.

Some farmers will need to take a longer term view, possibly restructuring their businesses. Crucial to identifying  a path forward is the creation of a clear budget and financial plan which  can provide a roadmap to navigate this period. Farm business may consider additional or alternative enterprises whether that’s diversification, environmental schemes or complementary livestock enterprises. These changes require careful planning, but the opportunities are there.

I firmly believe that by acting now, farmers can strengthen their resilience, future-proof their businesses and ensure long-term profitability.

Greg Riketts - GSC Grays

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Greg Ricketts
Director

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