Cash is King

Whilst the world continues to spin, we all need to eat. Farmers grow the daily food that we need and without them we would not have the milk for our cereal, wheat for our bread or beef for our Sunday roast.

With the global population set to rise to more than 10 billion by the end of the century according to the UN, there will be a continued need for farmers to produce our food.

This increasing need, coupled with current agricultural inflation (Agflation) running at over 50% for some farming businesses, means that more cash is needed to get products to the point of sale.

The farming industry has managed to adapt to a variety of different challenges over recent years and there will no doubt be more around the corner, including the loss of the Basic Payment Scheme subsidy income.

We have seen some very profitable farm accounts so far this year due to the increased output prices and limited increased inputs. 2023 is also looking to be a very profitable year for some, but profit does not always mean cash. With huge increases in working capital, living costs, wages, debt repayment (including bounce bank loans), and hire purchase repayments to name a few, there are a lot of demands for your cash.

As a result, it is essential that businesses forecast, plan ahead and manage their cash as much as possible. Whilst there will be changes to the plan along the way, not having a plan will not identify the cash required by a business. Involving the bank in any discussions at an early stage should help to secure their support rather than expecting them to increase funding at the drop of a hat at the eleventh hour.

Fixing costs can help to prevent inflationary increases from eating into your cash. For example, investing in solar panels to produce your own electricity can reduce exposure to energy price hikes in the future. With energy experts telling us that prices will remain high for some time, solar or diesel generators are being seen as more viable options for businesses.

Other options for managing cash flow include fixing interest rates or borrowing money to fund machinery investments, leaving cash available for ongoing business activities. It is also worth matching the repayments to the replacement policy so that you are not repaying the borrowing too quickly and taking cash out of the business whilst the asset is still being used.

Arable farmers could be selling crops on the future markets or using short or long pools to manage cashflow and obtain the best-selling price. Ensuring that you calculate your cost of production and aim to maximize the selling price will increase your overall margin, which in conjunction with pool payments can help to smooth out your cash flow.

In summary, managing your business cash requirements and mitigating the risk of increased costs or falls in sales as far as you possibly can, should ensure that your farming business thrives now and into the future to be able to feed the world.