Manage your cash flow
Most farmers will face seasonal cash flow pressures from time to time, whether they are arable farmers with one harvest period, autumn calving dairy farms or sheep farmers with lambs born in the spring. In these situations the main income is received at one specific time of the year, however the costs will be borne throughout the year.
Charles Skelton, Associate Director, Savills Food & Farming says there are many different strategies to manage this.
"As the old adage goes, if you can’t measure it, you can’t manage it, so a detailed budget is essential to identify where the pressures will occur," he said.
"Specialist bankers will understand the seasonal nature of their customers’ business and will often work with the farmer to provide an overdraft facility in line with that budget.
"If additional support is required then farmers can consider options such as forward selling the crop, or agreeing terms with merchants to delay payment of inputs until the crop is sold."
Many farmers are part of cooperatives where it is possible to agree a part payment against contracted future sales. In such cases a farmer will agree to sell a specific quantity of grain at an agreed value. A proportion of this, typically in the region of 50 percent of the sale value, can be requested as an advance payment.
"In other situations the same cooperative that will buy the crop will supply the seed, fertiliser and sprays to the farmer," he said.
"The payment of these inputs can be delayed until the crop is sold and offset against the income. The cooperative is able to wait for the payment in full knowledge that there will be a sale of the crop to them.
"Farmers will also have occasions where large payments are required at specific times, such as quarterly rent payments or payment for fertiliser as one annual invoice. Often timing of crop income will be managed so that there are sufficient funds to meet these requirements. This is another situation where the detailed budget will identify where the peak demands occur and therefore allow the farmer to manage the sale of the crops accordingly," he added.
For further information on managing farm budgets, contact Charles Skelton in the Savills Food & Farming team on cskelton@savills.com or by calling 07972 000 192.
