Farming isn’t an industry for the faint-hearted. It’s tough, physical work that requires strength of spirit and real tenacity to keep the business stable and turning over enough revenue to keep the farm afloat.
Here at Saint & Co, we appreciate that it can be difficult to drag yourself away from the day-to-day running of your farm in order to look at the underlying financial and strategic elements of your farming business.
But, take it from us, finding the time in your working week to consider the effectiveness of the business elements of your farm is the best way to secure your long-term future and profitability.
So, with this in mind, we’ve highlighted four key areas that every ambitious farmer should have on their business to-do list.
We’ll summarise the importance of these four areas here, and will bring you more detailed overviews over the course of the next month – giving you your own guide to improving the prospects for your farm.
Address your profitability and cash flow
There’s a common misconception in the farming sector that cash in the business is the same as profit. But there’s a big difference between your cash flow and your month-end profits.
It’s easy to fall into the trap of equating your cash with what’s left in the business bank account at the end of the month. But getting on top of cash flow is actually about understanding the predictable costs you’ll incur, and the known revenues you’ll make – and having a clear idea of how much liquid cash is left in the business to cover your monthly overheads, costs and bills.
Profit, on the other hand, is all about your margins and pricing once the costs of production have been deducted.
In short, cash is what’s in the business, while profit is the return on your investment in the farm.
Understanding that distinction is important. And when you do, it gives you the ability to refine, hone and improve your operating expenses and margins to deliver positive cash flow and healthy profits.
Understand tax and capital gains
Paying tax to HMRC is one of the least enjoyable aspects of running any business. But with the right understanding of the available tax reliefs and incentives for farming and agriculture, you can go a long way to minimising your tax spending – and maximising your profits.
Land and property will be two of your key assets as a farming business. But if you decide to hand over land to the next generation, or sell any of your buildings off for development purposes, there will be tax implications, such as the need for capital gains tax to be paid.
Talking to a professional tax adviser is the best way to deal with any tax challenges. By working with a specialist, you can plan ahead, create a clear tax strategy and maximise the reliefs and tax incentives that are open to you.
Get a handle on analysing (coding) with cost centres
The best way to understand the profitability of your farm is to know the specific costs and revenues relating to each different enterprise and each different product in your farming business.
Today’s modern accounting packages allow you to tag and code every element of your farm’s transactions. Whether it’s the cost of your utilities bills, or the revenue coming in from your livestock enterprise, you can record your numbers over time and accumulate that data in your accounts.
Why is that important? In short, where there’s data, there are insights and ways to improve your efficiency. It’s easy to pull off monthly reports that show you the performance of each area of the farm over the past month, or the past year. And by working in partnership with your accountant, you can spot the elements of the farm that are losing money, and start putting proactive plans in place to cure these inefficiencies and bring in a more healthy income.
Plan for the future and succession
To really secure the long-term prospects for your farm, you need to plan for the future. Making a living from your enterprise in the here and now is one thing, but you’ll have more security with a strategic plan in place that considers how the business will evolve over time.
Maybe you’ll want to diversify into a different specialism, such as beef or sheep. Or perhaps you can see the potential for increased revenue by creating holiday lets in your unused surplus outbuildings. You may even be nearing retirement and thinking about the best way to hand on your business to the next generation – or the possibility of an outright sale of the farm.
Whatever your next step is for the farm, you’ll need a clear business plan, a workable budget and a sound understanding of the tax implications. And that’s where having a business adviser to consult with becomes invaluable.
Helping you build a better future for your farm
At Saint & Co, we’ve been specialising in providing accounting and business advisory services to the farming industry for decades.
We know the challenges your farm faces, the tight margins that challenge your profitability and the impact that changes to taxation can have on your running costs and future plans.
If you’re looking to make your farm into a more profitable business, please do get in touch with us to talk about how we can help you.
Contact your local Saint & Co office and arrange a meeting with one of our farming business specialists.