Brian Richardson, UK head of agriculture for Yorkshire Bank, part of Virgin Money, reflects on the challenges, and support, affecting the country’s agricultural industries.
The farming, food and drinks industries have always been subject to the unexpected, with the vagaries of markets, weather, pests and diseases often causing big swings in income and expenditure.
Many can be foreseen, but I think we can agree that no-one could have predicted just what a disruptive force COVID-19 would be. It has changed all our businesses in ways we could never have envisaged just a few months ago.
As we start to come out of lockdown, and restrictions are lifted gradually, Yorkshire’s agricultural community and food and drink producers should be focusing on the longer-term financial impacts of this pandemic. Business planning is nothing new, but COVID-19 has brought home the need for companies to make sure they have a good understanding of their business’ health.
Food and drink production is a long-term enterprise. Crops cannot simply be turned off and cows cannot be furloughed. In this major national emergency, producers have had to react to difficult circumstances and have had to keep adapting their business to the unexpected. We have a long heritage of working with and supporting the farming, food and drink industries and we have carried this forward during the current crisis, working closely with customers to provide both short term and long term support to them.
There are practical actions that food and drink producers can take to help them stay one step ahead through these difficult times.
Forward budget – Keep a rolling forward budget in place so the likely outcome for the year can be understood. Anticipate cash requirements by including some form of cash flow in the budgeting process.
Scenario impact – Understand the ‘what if’ consequences of input and output volatility – and try and plan accordingly.
Investment and expenditure – Carefully evaluate the effects of significant expenditure or commitment to longer term finance on equipment and buildings. Capital expenditure decisions are often based around reducing costs or increasing outputs.
Financial accounts – Accounts may be produced in a standard format however to ensure they are relevant and reflect performance, they should be discussed with an accountant and professional advisers, as they may require further analysis. It is also important to note that accounts show what has happened in the past and while a good indicator of what may happen in the future, this is by no means guaranteed, particularly if your business is evolving or going through change.
Business performance evaluation – Constantly evaluate performance. How does it compare with industry benchmarks? How can the business keeping pushing to do better? Compare with neighbours and keep abreast, for example through the media, on what’s going on in the wider industry.
Prompt payment – Make sure payments are received on time for produce and stock sold. Understand the payment terms sold on and actively chase up any late payments. Most businesses now pay electronically, so use internet banking to keep an eye on money coming in.
Seek specialist advice – If challenges arise, short or long term, use a trusted advisor to help understand and discuss how to adapt the business to proactively address them.
Don’t avoid the issues – If the business has been significantly impacted by COVID-19, or where there are cash flow problems, get in contact with the bank as soon as possible to discuss issues and plans for dealing with any challenges arising. It is only after this type of conversation that the most relevant support can be put in place, for example, the use of the Government’s lending schemes. The best advice is always easier to provide when all the information for the business available, so have that to hand.
As we all know, there are many complexities in running a business. Currently the potential for extreme volatility caused by the pandemic makes keeping on top of accounts and budgets more important than ever.
As well as COVID-19, there are also the anticipated changes as we withdraw from the EU – so it has never been more important to have a full picture of your business.
However, I am confident that producing high quality food at incredible value for money will see the industry survive and prosper in the future. That is why it is so important to improve business planning and monitoring now, as it will be an essential part of the industry’s recovery.