Running a successful farming business doesn’t just mean working in the fields. It also means putting in the work in the office. Mark Smeaton, partner and head of EQ Agriculture tells us why.
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As the 2023 harvest nears completion, farmers can finally catch a breath after a demanding and eventful summer. While field operations have taken priority over the last few months, it is now time to get back into the farm office and focus on the money end of the business.
One critical area to focus on in the farming cash flow cycle is the annual budget.
What is an annual farm budget?
In simple terms, it is a list of all anticipated income and expenses for the year ahead, broken down into monthly payments.
You should also take into account cash items which do not necessarily affect the bottom line such as machinery purchases, bank loan payments and hire purchase commitments as well as partners’ drawings.
This will also give you the opportunity to decide if the business can support any future capital purchases.
Why an annual farm budget is important
We understand that the thought of preparing a farm budget can be a daunting prospect, with questions regularly asked as about its usefulness. The volatile nature of crop prices, interest rates and energy costs can severely impact on how the figures look.
However, without undertaking this initial exercise, there is no real way of knowing if you will stay on the right side of the overdraft limit.
Who can help you with your farm’s finances in the UK
A profitable business is not always a cash rich one and being in a position to spot the need for future bank assistance is essential and should be flagged up to your bank manager at the earliest opportunity.
Like all businesses, farmers should take this opportunity to review current debt facilities with their bank, consider existing debt structures and any potential benefits of locking into fixed rates. This will also give some certainty for future budgeting purposes.
Planning your budget and reviewing your financial position is a vital part in all businesses. This is even more critical within the agricultural industry when it may take over 12 months to generate cash from the initial outlay.
EQ Agriculture is one of the leading providers of accountancy, taxation and business advisory services in the Scottish rural sector.
If you need help when it comes to your farm finances in the UK, contact the EQ Agriculture team.
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