Farmers should urgently assess their cash flow position amid the Covid-19 pandemic, so they can be proactive in case of shortfalls.
The virus outbreak has caused a lot of uncertainty across the industry, with people worrying about input supplies and the ramifications on their own businesses. However, a simple cash flow assessment could alleviate worries, says Andrew Vickery, head of rural services at Old Mill accountants and financial planners.
“Farmers are busy outside right now, but though the industry may be more insulated from the issues caused by Covid-19 than other sectors, it’s by no means immune. Farmers still need to be thinking about cash flow as it’s the main challenge for most businesses.”
Those in a tight financial position against their overdraft limit – or without an overdraft facility at all – should consider how the current climate will affect their cash position, explains Mr Vickery. “Assess whether the situation is likely to delay people paying you, or if it will disrupt the supply of goods, leading to short-term cash issues.”
Putting a cash flow budget in place is essential, even if it’s only basic, as the margin for error is tighter than normal, he adds. “It might also confirm that the business is actually in a strong position and you don’t need to worry. It’s a useful tool for alleviating fears and identifying problems early on.”
Online bookkeeping software – which most farm businesses will have been using since April 2019 – provides an easy way to look at the accounts, says Mr Vickery. “It gives you a lot of information at your fingertips, allowing for easy cash flow planning. A lot of the leg work will have already been done through your VAT returns.”
If an assessment highlights cash flow issues, speak to the bank as early as possible. “Identify all of the information the bank is likely to need and what type of credit works best for the business,” explains Mr Vickery. “While the Coronavirus Business Interruption Loan Scheme has received a lot of publicity, it might not be the right solution for all borrowers, so understand which route the bank is likely to go down.”
Any lender will want financial information on the business, so ensure the accounts are up-to-date, year-end is completed and you can explain why the new or extra facility is needed to manage cash flow. “Banks are going to be less willing to accept estimates because of the volume of requests they are having to process – so the bar is higher than normal,” warns Mr Vickery. “In short, potential borrowers need to make it as easy as possible for the bank to process and approve their application.”
Farmers should take other precautions to avoid running out of cash; if buying new kit don’t use an overdraft – instead consider hire purchase, he advises. “It’s also worth considering capital repayment holidays on existing loans.”
Businesses which are directly affected by Covid-19 may want to furlough staff, but the scheme only lasts until the end of May, explains Mr Vickery. Directors of limited companies can also furlough themselves if necessary, while the self-employment income support scheme could help those who trade as sole traders or partnerships.
“The key thing is to identify where you are financially right now,” stresses Mr Vickery. “And then ask for some help if you need it. Don’t sit there panicking, speak to someone – an accountant or consultant – and get a helping hand to know where you are now and if you need to take any action to safeguard your business.”