With continuing uncertainty hanging over the agricultural sector, farmers should ask themselves one simple question, ‘Is my business fit for the future?’, emphasises Bruce Masson, a Partner with leading East Anglian chartered accounts MHA Larking Gowen.
“The future for UK agriculture has been set out in the Agriculture Bill, which should pass into law later this spring,” Mr Masson states. Based at MHA Larking Gowen’s office in Diss, Norfolk, he adds: “Michael Gove has referred to it as “The Fourth Agricultural Revolution” and set out a timescale, at the end of which farmers in the UK will be operating without subsidies. Others have referred to it as a ‘Nine-year notice to quit’. Regardless of what it is called, the clock is running and now is the time for farmers to start thinking about how their farm will be placed by the time the last Basic Payment Scheme (BPS) cheque arrives in 2028.”
Mr Masson encourages farmers to take note of the following ten-point plan and suggests what actions they might consider:
- Do you have decent management information about how the business stands today?
Start the process by listing the assets, liabilities, strengths, weaknesses, opportunities and threats facing your business
- Have you prepared a 12-month future cash flow forecast?
Even if the bank manager isn’t insisting on seeing it, preparing a forecast is a good discipline. It isn’t difficult and it’s why we have spreadsheets. Once you’re happy with your forecast, create some different versions to see how movements in yield, productivity or price might affect the bottom line. If you are doing this already, congratulations – you’re in an elite 33%, according to DEFRA.
- Will there be enough cash left to live on in 10 years’ time?
To find the answer, project your forecasts a decade into the future, taking account of the removal of BPS over the seven years from 2021.
- How you will react?
Now you’ve identified the extent of the problem, there are various options. At this stage, turning off the computer and thinking about something else is not one of them. You could instead:
- Trim costs to the bone, accept a poorer lifestyle and hope something will turn up.
The ‘hunker down’ approach will only work for the well-capitalised freeholder who is prepared to endure the pain of living on far less money to avoid any other difficult decisions.
- Work constructively with neighbours.
Anecdotally, UK farms in some parts of the country are operating with about 40% too much machinery. Look at sharing machinery, storage, labour and even land. Could you swap outlying parcels of land with others or increase/decrease farm size to arrive at your personal optimum? These arrangements will take time to implement, so now is a good time to start the process.
- Think about the productivity of your own land.
Are there areas which would lend themselves to environmental schemes, whether these be the current Stewardship packages or the longer-term Environmental Land Management Schemes which will arrive in the future? Identifying such areas now and slotting the reduced overheads into your ten-year plan may help to close the gap.
- Are there other underutilised assets on the farm?
These may lend themselves to diversification, either by yourself or perhaps by your potential successors. You could lease them to other entrepreneurs or sell them and use the cash elsewhere.
- Do you have the appetite for this?
Would now be a good time to start the handover process and bring in a new generation to deal with this challenging future?
- Think the unthinkable. Is now the time to get out?
This doesn’t always mean selling up, although it might be the answer for some. It could involve letting the land or setting up a contract arrangement with neighbours or independent contractors. Seek advice from a good accountant on the tax consequences.
Whatever happens, adopting a ‘head in the sand’ approach is not the right answer. Even deferring action for a couple of years is dangerous since some of the options may take several years to implement, so take note of the military adage ‘Time spent in reconnaissance is seldom wasted.’
Further details from MHA Larking Gowen on 0330 024 0888 or email [email protected]