The importance of cash flow for business resilience
Louis Fell, Partner at George F. White, discusses the importance of cash flow for business resilience.
“Across Yorkshire, we have such a diverse range of rural businesses, many of which have developed on the back of their particular soil type or the land and/or property asset available to them. Funding is often key in order to grow and expand, and a sound understanding of the business and management is a fundamental factor when looking at those successful rural businesses.
Agriculture is generally heavily dependent on working capital; sowing a grain to sale could be upwards of 12 months and it’s not surprising to see OSR sown before harvesting the previous year’s OSR crop for instance. Take suckler cows, the time and cost involved in buying a heifer and taking her through to calving, and then selling in the fat market, is extremely long and high cost. You have to be certain that the return warrants such risk and capital outlay.
Those businesses that are successful are able to manage their cash flow accordingly. They know what working capital they need and what funds will be available in the future months and years in order to fund further expansion and growth. I’m not saying that everyone needs cash flows, some just don’t want to, but for me, they are a great tool in understanding what funds are available in the future. They help you understand, at an early stage, the implications of any blips (say a price drop of 10 per cent or a delay in BPS by four months), and can help you make informed decisions on expansion and growth. There are many instances where people have taken land under FBT’s but have simply run out of cash to farm it, forcing major restructuring.
Cash flows are also an important tool in bringing the banks along with you. Bankers are generally happy when they see there is management of cash flow; good accounts are also important, but having a handle on the flow of funds in the future is a key to making that relationship work, and in most circumstances, enable you to access more funding.
Another key message at present from George F. White is to make use of EU funding whilst it’s still around. You may have seen a sudden spate of grants being made available such as, the new Countryside Productivity Grant, Forestry Grants, LEADER, Rural Growth Programme etc. all of which are seeking to get the money spent before it disappears. They are a great way to help push forward a project or to grow and expand your business and provide help with the capital cost; yes, sometimes the paperwork and application process is a hassle, but if it contributes 40 per cent towards the capital and gets it off the ground it’s definitely worth the effort and time delay. We advise to forward plan, as firstly the process can take up to six months and secondly to work out the working capital requirement.”