Now Is The Right Time For Farmers To Assess Cash Needs And Consider Restructuring Debt
The beginning of the year is typically the time when farmers take stock of their finances - often in readiness for the annual bank manager review. Given the generally poor outlook for farm-gate prices especially in sectors such as potatoes and dairy, the task this year may not be one to be relished.
“Finding the time to properly assess the financial status of the business and knowing where the cash pinch-points will be in the future could be the difference between success or failure for some”, says Robert Taylor partner in charge of Agricultural Mortgage Corporation (AMC) agency at CKD Galbraith who offers the following advice.
Be realistic and budget honestly
The first imperative is to budget honestly and be realistic with your projections and assumptions. Being over-optimistic on your calculations will not serve you well when it comes to the reality of your cash flow and the requirements for working capital. How much will you need and when? What will this mean to your overall debt position and how will you manage this in the best interests of your business?
“Hope for the best” or take the time to plan for the longer term
For some the impetus for planning ahead will be to “trade through” the next few months. This may mean some “fag packet” calculations, arriving at a reasonably sensible figure, speaking to the bank manager and adopting a “hope for the best” outcome. It’s a strategy but ultimately could be a costly one. However, the chances of having to do it all again in six months’ time, and with a poor set of accounts is likely to be high.
Others will invest the time to more fully consider all the key financial drivers of their business. This could include the short to medium term cash needs, say for the coming year, but may also include the need to invest in the business over time. Whilst the appetite for this may be low, the reality is that even some level of on-going capital investment will be needed for the business to succeed.
When a realistic assessment of cash need is done it’s time to consider the total level of debt and how this can best be structured. With cost management high on the agenda, knowing the total monthly or annual cost of borrowed money becomes a key consideration and one that informs the best option for the business for the future.
The overdraft is an obvious starting point but there are other, more secure, alternatives that could provide breathing space for the business to trade successfully through a tough time.
Re-structuring hard core debt over a longer period
A long term loan from AMC can provide a way to repay existing hard core debt over a long term, up to 30 years. Loans can be structured to suit your particular circumstances including interest only or repayment terms at variable or fixed rates of interest. Once in place the loan is un-callable (and can be passed across generations) so long as loan commitments are met. Interest rate margins are agreed for the term of the loan and there are there are no annual reviews.
Guaranteed working capital
The AMC Flexible Facility provides a secure source of working capital for a period of 5 years during which time the only person that can ask for the agreement to be changed is you, the customer. It operates on a similar basis to an overdraft and as cash flow needs alter throughout the farming cycle funds can be drawn down and then repaid and then drawn again over the 5 year term. Once in place there are no annual reviews and the loan margin and annual facility fee are agreed at the outset applies for the full five year term and interest is only charged on the amount drawn.
For further information on AMC’s shorter term facility or their long term mortgage please call Robert Taylor at CKD Galbraith on 0800 38 99 448.