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UK: Assessing financial needs of your horticultural business

Finding the time to properly assess the financial status of your business and knowing where the cash pinch points will be in the future could be the difference between success or failure.

The points to consider are as follows:

1. Be realistic and budget honestly
The first imperative is to budget honestly and to 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?

2. 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 is a strategy but ultimately it could be a costly one and 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 but may also include the need to invest in the business over time.

Whilst your appetite for this may be low, the reality is that even some level of ongoing capital investment will be needed for the business to succeed.

When a realistic assessment of cash need is done, it is 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.

3. Restructuring hard core debt over a longer period
A long term loan can provide a way to pay 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 of variable or fixed rates of interest. Once in place, with some lenders, 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 no annual reviews.

4. Guaranteed working capital
One Bank offers a flexible facility which provides a secure source of working capital for a period of five 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 five year term. Once in place, there are no annual reviews. The loan margin and annual facility fee are agreed at the outset and applied for the full five year term and interest is only charged on the amount drawn.

For more information:
Quinton Edwards
Simon Quinton Smith

Publication date: 8/10/2018



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