The farming and wider agricultural industry has always been subject to the unexpected, with the vagaries of markets, weather, pests and diseases often causing big swings in income and expenditure. Many can be foreseen, but by no means all. Witness COVID-19, which has been a disruptive force that has changed all our businesses in ways we could never have envisaged just a few months ago. 

Here, Brian Richardson, UK Head of Agriculture for Yorkshire & Clydesdale Bank, owned by Virgin Money, considers how farmers can be prepared for longer term financial impacts.

“Farming is a long-term enterprise. Crops cannot be turned off and cows cannot be furloughed. So a major national emergency such as COVID-19 has to be dealt with against a continuous production cycle, therefore farmers have to react to difficult circumstances, and keep adapting their business to the unexpected.

The pandemic has presented a major challenge, with markets disrupted and in some cases disappearing overnight.  At times like these it is essential to have a good understanding of your finances, what the prospects are going forward and to consider what additional support your business may need both immediately and in the future.

Brian is keen to provide some practical guidance to stay one step ahead. Business planning is nothing new, but COVID-19 has brought home the need for farmers to have a good financial understanding of their business’ health.

• Financial Accounts - All farm businesses legally have to produce financial accounts. These accounts may be produced in a standard format however to ensure they are relevant to you and reflect your performance, discuss them with your accountant and professional advisers, as they may require further analysis. It is also important to note that accounts show what has happened in the past and whilst a good indicator of what may happen in the future, this is by no means guaranteed, particularly if your farm business is evolving or going through change.
• Forward Budget - Keep a rolling forward budget in place so you can understand the likely outcome for the year. Anticipate cash requirements by including some form of cash flow in the budgeting process. Most farm business software packages have a budgeting and cashflow module included which are intuitive, easy-to-use, and can be updated as the year progresses. Do not treat these as a ‘one-off’ document - keep updating them as information becomes available. This will ensure that you have the latest information.
• Scenario Impact - Understand the ‘what if’ consequences of input and output volatility. For example, what will the impact be on your business income for each 1ppl change in price for your milk or a 0.5t/ha change in wheat yield?
• Investment and Expenditure - Carefully evaluate the effects of significant expenditure or commitment to longer term finance on equipment and buildings. Capital expenditure decisions are often based around reducing costs or increasing outputs. Make sure you are realistic in considering these and that the capital expenditure will really deliver the results you expect.
• Business Performance Evaluation - Constantly evaluate your performance. How does it compare with industry benchmarks? How can you keep pushing your business to do better?  As well as formal benchmarking through your accountant and advisor, there are more informal ways to do this. Compare with neighbours and keep abreast, for example through the media, on what’s going on in the wider industry.
• Prompt Payment - Make sure you get paid on time for produce and stock sold. Understand the payment terms you have sold on and actively chase up any late payments.  Discover why this has happened and if your supplier is having any financial problems. Most businesses now pay electronically, so use your internet banking to keep an eye on money coming in.
• Seek Specialist Advice - Where you start to see challenges, short or long term, use a trusted advisor to help you understand these challenges and discuss how to adapt your business to proactively address them.              
• Don’t Bury Your Head - Where your business has been significantly impacted by COVID-19 or where you see cash flow problems, get in contact with your bank as soon as possible to discuss issues and your plans for dealing with any challenges arising.  It is only after this type of conversation that the most relevant support can be put in place, for example, the use, if appropriate, of the Government’s lending schemes.  The best advice is always easier to provide when there is a complete pack of all the information for the business available, so it is vital that you have this to hand. And of course, do not be afraid to pick up the phone to speak to your bank relationship manager and wider team of professional advisors.

Brian continues: “As we all know, there are many complexities in running an agri-business. Currently the potential for extreme volatility caused by the pandemic makes keeping on top of farm accounts and budgets more important than ever. Clydesdale & Yorkshire Bank has a long heritage of working with and supporting the farming industry and we have carried this forward during the current crisis, working closely with customers on any requirements, both short term and long term.

“COVID-19 will not be the last challenge. There are more on the horizon, with changes to support as we withdraw from the EU. It has never been more important to have a full picture of your farming business.”  Brian concludes:

“Agriculture is a long-term industry and I am confident that producing high quality food at incredible value for money will see it survive and prosper in the future.  That is why it is so important to improve business planning and monitoring as it will be an essential part of the farming industry’s recovery.”