28 December 2001

PLUGGINGYOURCASHLEAKS MAKESSENSE

With many enterprises

struggling to stay afloat,

controlling expenditure has

never been more important.

Andrew Shirley picked up

some tips to help keep cash

in the business

MOST farm business would benefit from plugging cash leaks. But reams of recent farm business surveys suggest many are still failing to do so.

There are many ways to keep money in the business. Some obvious, some not. When it comes down to planning, they can easily be overlooked.

But first things first. It helps to know how much needs to be saved to help the business stay on course, so it is vital to prepare some sort of farm budget, says Charles Holt, a Lincoln-based member of the Farm Consultancy Group.

"The first priority is to identify the size of the cash hole; without knowing the scale of the problem it will be difficult to solve it."

As always, when it comes to making decisions, several heads are better than one. Mr Holt recommends a brainstorming session, which is far more likely to cover all the options.

"All the members of the family and maybe the farms consultant should sit around a table and come up with possible solutions. These should all be written down, however mad they may seem.

"I often advise people to use this method when considering potential diversification projects but there is no reason why it shouldnt apply to cost saving as well. It is surprising how many good ideas that wouldnt usually be considered come up."

Machinery is one area where Mr Holt reckons too much cash is tied up. A quick look round most farmyards, or the nearest nettle patch, is likely to reveal something of value. After all, theres a buyer for everything, so what seems to be a rusting hulk could end up paying a few bills. "If you dont need it sell it – there are plenty of auctioneers who would love the business."

Of course, farmers love machinery. The newer and shinier, the better. Result? Too many businesses have money tied up in kit they could do without. "There are substantial savings to be made by using contracting or share-farming agreements. Some dairy farmers make do with only one tractor."

Mr Holt admits this wont work for everyone. But if cash is tight, he believes most hire-purchase firms will look favourably on a request for a three to four month loan repayment holiday until cash flow has improved.

Thinking ahead pays. It sounds obvious, but, when it comes to quota, for example, prices more often than not rise at the end of the milk year. Too many people leave it to the last minute, and, before you know it, its a sellers market. So, if extra milk quota is needed, plan the purchase. "Whenever possible try to buy quota when other people arent. It will be cheaper."

New tractors apart, land is probably second on most farmers shopping lists. Cross it out, says Mr Holt. "Farmers often seem unable to resist the temptation to buy more acres if they become available. But the extra profit is unlikely to even cover the interest payments on the finance required."

Overheads are a trickier area, but that doesnt mean they should be ignored. Far from it – some big economies can often be made. "Labour will become increasingly costly as good staff become scarcer and more expensive, so making the best use of it is important."

Switching to a more efficient system can reduce the need for a full-time worker, he says. "Consider using a contractor for some jobs, but make sure you shop around to get the best rates without compromising service."

Retirement

If a member of staff is due to retire this can be an ideal time to streamline labour costs, Mr Holt adds. "It is a key opportunity to rethink the way the business operates without the cost of redundancy payments."

But some fresh new faces may be welcome. "Employing a farm secretary on a part-time basis allows the farmer to spend more time in the field or marketing his crops," says Mr Holt.

As well as organising the office, chances are your new-found office angel will know a thing or two about IT, too. Computerising farm records can save time and money, he says. "Using a farm accountancy package makes sense but dont be tempted to spend too much on the computer itself – £400 will buy a perfectly adequate set-up."

Finally, its always worth summoning up the courage to meet the bank manager – regularly. Negotiations to get the best interest rates and charges can pay dividends. "And dont be afraid to play one bank off against another to get the best deal."

Several heads are better than one when it comes to finding ways of saving cash, says Charles Holt.