10 Years From Now, How Will Your Farm Business Look?
It’s an interesting question; financially, aesthetically, will you even still be there? It’s a difficult industry to pin down with fast moving markets and a need to constantly adapt to stay at the top. Not to mention high stress levels, high accident rates and volatile profit levels! But for those in the industry, it’s a much loved way of life.
One thing which as a business we are always keen to promote is for clients to develop a better understanding of their cashflow to assist in the decision making process on both a short and long term basis. Too many just focus on the profit and loss accounts provided by the accountant, and whilst the tax is important, the ability access finance and cash is what sets the more successful business apart. This can then form the beginnings of a plan, providing direction and long term goals.
So, 10 years from now, what do we think we know? With global reserves ever depleting, it is highly likely that in the long term crude oil prices will rise, the major impact (particularly for arable farmers) being increased fuel and fertiliser costs.
On a medium to large scale arable operation where all of your eggs are in one basket, what can be done to increase profitability and safeguard the future of the business?
If we know that overheads are likely to increase in forthcoming years, the impact will be escalating working capital requirements and increased levels of risk exposure to the business. Particularly if we have a poor spell of weather as shown in the past 24 months where many businesses are now very much struggling for cashflow.
I suspect that targeting output in terms of yield per acre would be a good starting point. Phosphorus (P) and Potassium (K) levels is an area we can gain control of and one which will have a positive long term impact on the land. P & K applications can be spread over a ten year period providing a tangible result at the end of the day with increased soil indices and (hopefully) bottom line profit.
In turn, technology is another area in which many of us could still take advantage of. Remaining open minded can be difficult – especially when a particular style of farming has been the ‘status quo’ for a long time. Products such as SOYL mapping and GPS are becoming increasingly prevalent in the industry providing benefit where economies of scale allow for a sufficient return on investment.
The government have recently recognised that investment in this technology is needed to drive the industry forward. This is shown in the FFIS grant scheme which is currently open for applications providing up to 50% grant aid on the initial capital investment of the technology.
In terms of livestock, we think it’s all about getting the right team behind you providing specialist support. This needs to come from all of the various professions – vet’s, nutritionist’s, all of whom need to be delivering additional output to the business through bespoke advice.
Nobody can know what UK agriculture will look like in 10 years’ time – inevitably things will happen which we have no control of – take the Somerset Levels as a prime example. Going forward, the businesses that will continue to grow, will embrace this new technology with the aim of generating more profit and greater savings. But without an understanding of where your business will be in cashflow terms, you’re flying blind.
The importance of cash flow for business resilience
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