Martyn Dobinson, a partner at Saffery Champness, gives his top tips on how rural businesses can improve their cash flow.
Bank finance is never easy to secure and is often a last resort and so owners of rural businesses should always try to optimise their cash flow management. It is a particular issue for those rural businesses that have developed beyond their farming core and are running other diversified enterprises. Cash management and cost control have never been more important.
Political uncertainty, reduced sales prices, and increased feed and fertiliser costs have exacerbated the situation and, if they have not needed it yet, many businesses may soon require an additional cushion of funds to remain secure through what may be troubled times ahead.
We have produced a 10-point checklist to ensure that owners and managers of rural businesses stay ahead:
- Bank finance
If you need extra funds or finance, discuss fixing interest rates with your bank, or an interest rate cap. Banks tend not to respond well to last-minute calls for increased credit facilities, so keep them informed and try to plan as far ahead as possible for any additional funding requirements.
Keep a careful eye on debtors and, in particular, the length of time that debts are outstanding. Implement robust procedures to identify overdue accounts (or those that potentially will fall overdue), and to follow these up promptly to ensure that your business is not adversely affected by bad debt.
Suppliers will almost certainly have their own financial pressures. Assuming you have a good payment history, as a regular customer you may be able to secure preferential payment terms. Also, consider what would happen if one of your major suppliers went ‘bust’. Do you have a plan B? Make the most of the credit terms offered to you by your suppliers, without exceeding these of course.
- Financial management
Be aware of what is happening with the cash of your business and implement a financial system that allows you to do so. Good accounting software is increasingly important – allowing digital reporting and various management reports to be generated. These outputs of your software should be reviewed and monitored regularly.
- Cost management
Consider where cut-backs and savings can reasonably be made. These areas may not always be immediately apparent, but an annual audit of every aspect of the business’s cost base can identify opportunities to cut back and improve financial performance.
- Plant and machinery and investment
Make full use of existing rates of relief and allowances to make new purchases in the most tax efficient manner. Investing in the right equipment and at the right time can not only save tax and/or money, but can also increase efficiency.
If above the VAT registration threshold, you will now likely be reporting under Making Tax Digital. Be diligent about claiming rebates where you may have made overpayments and dispute any penalty charges imposed where there is no good reason for them, or where the fault is with the new system/process rather than your own errors.
Have you considered taking the Basic Payment in euros? The rate used for the payment is fixed on 30 September, but the option to take payment in Sterling or euros will have been made in May. Although there is no guarantee, if interest rates are favourable at the time, it could be beneficial to take the payment in euros rather than in Sterling (or vice versa of course!).In the event of a no-deal Brexit, eligible beneficiaries will continue to receive the same level of funding until the end of 2020 under the terms of the government’s funding guarantee. What about supplies purchased from overseas? Could it be beneficial for payment for these to be made in foreign currency?
Insurance should not be overlooked. You should ensure that you have a good relationship with your insurer, that your premiums are not creeping up every year unchallenged, and that you have the cover that you need.
- Future proofing
Some eventualities are impossible to plan for. However, some consideration of and planning for potential eventualities and influencing factors is always good practice.
Implementing these 10 tips should ensure that cash flow, the life blood of any business, is healthy. When access to liquidity is restricted then cash management becomes critical. Cash flow management has a double benefit – it can help avoid the downside of unexpected cash calls, and it will give you a commercial edge when transacting.
Businesses that are able to manage their cash efficiently usually require less working capital, are less vulnerable to trading peaks and troughs, and are able to extend more competitive credit terms than their competitors.