Poor commodity prices, difficult weather earlier in the year, a fluctuating exchange rate and subsidy delays, have created a challenging business environment for Scottish agricultural businesses. And, along with the EU Referendum outcome, will likely be hot topics at this year’s Royal Highland Show, says Donald Macdonald, Area Director, Agriculture, Bank of Scotland.  But with medium and long-term prospects remaining strong, how can farmers work better with their banks and other advisers to weather the current storm? 

The most important point is that farmers continue to proactively budget and forecast.

This puts a farming business in a stronger position overall with regard to planning. It demonstrates to the bank that the farm is thinking of the future and what that might bring, and takes into account the serviceability of any debt facilities being considered – a key aspect when considering major expenditure or expansion.

Also, in challenging times, taking a long hard look at the numbers and making realistic forecasts on the back of those can often throw much needed light on areas where costs can be trimmed back.

Any farmers having difficulty compiling figures should work with their accountants and advisers, as they may provide welcome fresh perspective. Often, the objectivity that comes with professional advice will be worthwhile, especially at a time when many businesses operate under cashflow pressure. Advisers can help prepare annual projections for both trading and cash.  These projections can be used as a route-map for the year and may assist in giving early warning if matters are deviating off course.

It’s particularly important for farmers to understand their future cashflow needs. A farm business can operate at a loss for a period of time, but it can’t operate without cash or working capital.  Banks therefore want to see that farm businesses understand their short, medium and long-term cashflow requirements, taking account of what will be needed and when – not just for working capital, capital expenditure and land purchase, but also for personal expenditure such as tax, children’s education or even much-needed holidays.

It’s also worth running a sensitised projection alongside the expected ‘base’ projection, where potential impacts such as changing interest rates, commodity prices, input costs and subsidy exchange rates can be factored in. It's important to be realistic with projections. Banks appreciate that many farm businesses might not be doing well at the moment. But they will want to see that the owners understand where the business is and, looking forward, what its cash needs might be through the economic cycle.