Pile of cash and notes© Rex Shutterstock

Farmers Weekly’s Business Clinic experts offer free advice on legal, finance, tax, insurance, farm management and land issues. Here Iain McVicar Albert Goodman’s head of agricultural group give some advice on what do do when cashflow problems bite.

Q: We have committed our basic farm payment to paying off overdue creditors. Do you have any suggestions as to how we can generate cash in this difficult time?

A: Lack of profits may not damage a business in the short term, but lack of cash will destroy a farm business very quickly.

Iain McVicar
Iain McVicar, head of agricultural group, Albert Goodman

Basic payments have started to flow into farm bank accounts, however harsh realities mean that for many farms this year’s subsidy payment has already been promised several times over to creditors.

Also, low farmgate prices mean cashflow will become increasingly tight for some, particularly next spring.

See also: Business Clinic – should I spend to make use of AIA?

Even the best-run business can, with some imagination, think of ways of generating extra cash. Some opportunities (see table below) however carry advantages and disadvantages which need to be accounted for in your decision making.

 

Method of cash generation

Advantage

Disadvantage

1

Late payment of creditors.

Short term can work, but only for very short-term cash problems.

You lose credibility with suppliers, and there can be a risk of creditors taking action against you or your business.

2

Sale of surplus plant and machinery, or sale of scrap metal.

 

 

Quick cash generation without affecting business performance.

Tidy up farm.

 

3

Refinance plant.

Cash inflow reasonably quickly if you have machinery that can be refinanced.

Additional loans to repay. May not be possible with old plant.

4

Cash in off-farm savings (Genus shares for example).

Generally easy to do and quick.

Leaves a lack of a safety net for business owners.

5

Draw down a pension policy.

Often 25% of a pension can be taken as a tax free lump sum.

Needs specific advice from pension specialists, which takes time.

6

Cease or cut back an enterprise.

Selling livestock can generate almost instant cash.

There may be long-term damage to a farm business unless this is well planned.

7

Sell an asset, such as land or buildings, or a property.

Potentially large sums of cash can be generated.

This may affect the future viability of the business, and have significant tax consequences.

It can take several months.

8

Increase overdraft.

Quick access to cash.

May be difficult if you cannot prove business viability.

9

Use credit cards.

Can be a quick method of generating cash.

Paying these back can prove difficult.

Interest rates paid may be very high.

10

Forward sell next year’s arable crop for an advance part payment.

Quick cash for a percentage of next year’s crop.

What happens next year?

11

Send family members out to work.

Weekly or monthly regular income.

May adversely affect the business or family life.

12

Sell crops or other stock faster than normal.

Brings forward sales and cash.

This may not maximise profit from an enterprise and could leave you with a larger tax bill.

Even the best run business can, with some imagination, think of ways of generating extra cash, which will be invaluable at this time.


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