Top tips for diversifying your business
14th May 2020
“Long gone are the days where farmers were strictly farmers; increasingly farmers are entrepreneurs – they’re craft beer brewers, fresh produce sellers, petting zoo operators, wedding venue hosts, clothing retailers and anything they want to be.”
“Long gone are the days where farmers were strictly farmers; increasingly farmers are entrepreneurs – they’re craft beer brewers, fresh produce sellers, petting zoo operators, wedding venue hosts, clothing retailers and anything they want to be.” This is according to Annabelle Carmichael, principal of accountancy firm Carmichael Kingham & Co, who shares her top tips for farmers who are looking to diversify.
Pros and cons
While I think it is fair to say that farmers have always diversified into other agricultural markets, increasingly farmers are now diversifying into sectors unrelated to agriculture. Notably I have seen a merino wool farmer enter the women’s clothing design and retail market, and more and more farmers are entering markets such as venue hire, pop-up food stalls and B&B lodging.
There are pros and cons to both options; arguably the biggest advantage to entering another agricultural market is the transferable knowledge and resources the farmer already has, whilst the biggest risk is typically the capital-intensive nature of agricultural segments. Regardless of the segment, it’s difficult to escape the need to invest in expensive equipment. Conversely, the biggest advantage of entering a sector unrelated to agriculture is the lack of capital outlay, there are few industries which rival the capital outlays required in agriculture. However, the disadvantage is that the farmer is required to learn new skills and enter a market in which they likely have no expertise or contacts.
The stumbling blocks are unique to each farmer’s skillset and diversification plan; however, farmers that diversify rarely regret it and often wish they had done so earlier. Farmers often hesitate due to the risks associated with business change and there’s no doubt that diversification carries risks, but with diligent planning these risks can be mitigated or minimised to a manageable level.
Top tips for diversifying
My biggest tip is having a plan. If you know that you want to diversify but don’t know which route to take, sit down at the kitchen table with family, employees and anyone who understands your business and brainstorm ideas. It sounds almost juvenile to suggest such a thing but it’s truly the best way to start your diversification plan.
Once you have narrowed down your diversification options choose one option to work on. You may have three really good ideas; however, if you don’t have sufficient experience and bandwidth, all three are likely to fail, so choose one and put everything you have into making that particular option a success. Once you have achieved a level of diversification you can explore the alternative options if desired.
I’m a big believer in ‘if you build it, they will come’ which goes hand in hand with one of my favourite phrases: ‘have a go’. If you find that in your area people aren’t paying to eat nibbles and sip wine whilst listening to a jazz band, perhaps that’s only because the ‘wines and tunes on the lawn event’ hasn’t been built yet. If that’s something you can envisage on your farm, have a go. Build it.
Don’t underestimate the small ways you can diversify, such as selling eggs or flowers from the road. There isn’t a big risk in selling produce this way and it can work as a stepping-stone into other areas of diversification.
Help is at hand
Diversification comes in all shapes and sizes. As accountants, the best way that we can assist farmers to diversify their business is by assisting clients to create a business plan. We work with clients to bring their idea to life in a financial sense by preparing cashflow and profit and loss forecasting.
We work with clients to minimise risks to their current and future business segments so that growth doesn’t adversely impact their current business. We offer monthly accounting packages (you can find more details about our packages on our website), all of which include monthly bookkeeping among other services. By providing bookkeeping as a monthly service, our clients always have up-to-date useful financial information, we don’t just prepare your accounts on an annual basis in order to satisfy regulatory requirements, we keep your records up to date so that we can work with you to provide financial insights into your business to help you grow.
Our monthly packages also mean that we are close to our client’s businesses and we are in touch with owners regularly so that we can offer quality advice on a regular basis.