Henry and David are at the kitchen table, hunched around a laptop surrounded by paperwork, George is looking on with a frown. Mary walks in…
Mary: Oh dear, this all looks a bit serious…
Henry: Hello love! Just trying to battle through the dreaded cash budget.
George (to Mary): They reckon we need to borrow money, but I want to know where’s it all gone?
David: We’ve been trying to explain grandad – we have enough cash in the business for the moment, but with harvest coming up and input prices so high, we’ve been trying to work out the pinch points and what the shortfalls might be.
Henry: It’s looking like we’re going to have to extend the overdraft, so the bank is probably going to need some forecasts to support our request.
Mary: I have to say, I’m not keen on further borrowing …
George: At last! Some sense being spoken. We never had to borrow money back in the day.
Henry: I know dad, but the prices you were paid back then were much better compared to what they are now. Also, the input prices are higher and the SFI (Sustainable Farming Incentive) income doesn’t yield anywhere near as much as the BPS (Basic Payment Scheme) did, all of which means we are on much tighter margins.
David: Crop prices have increased a bit lately but are still much lower than they should be. Thank goodness the income from pigs and chickens is doing OK.
Mary: And the rental income is good, isn’t it?
Henry: Yes, the rental income is helpful, but the bottom line is we have some big bills coming up in the near future, for next year’s fertiliser and fuel for harvest and autumn cultivations. It might leave us a bit short until we sell some of this year’s harvest.
George: But it’s never good to borrow against a harvest we haven’t yet done. We don’t know how it’s going to yield, particularly without any ruddy rain! Feels like everything is against us…
Henry: I agree dad but… needs must.
Mary (puts reading glasses on, reads paperwork): We’ve also got tax payments on account due at the end of July.
George: Oh yes! The taxman always wants his bit.
Henry: I’ve spoken to Ensors about the payments on account and as they are based on the previous year, which was much better than the latest year, they suggested we could elect to reduce the payments.
George: Well, that sounds like a grand idea!
David (to Henry): I can put some rough figures together for Ensors to have a look at. But I must point out dad, we need to be aware that we could end up paying interest on underpaid tax if we reduce them too much…
George: There’s always a bloomin’ catch!
Mary: And, of course, we will have the tax liabilities to settle next January as well.
David: Yes, but don’t forget mum, we are expecting a lump of income from the cricket bat willows before the end of the year, which will help with that.
Mary: Oh yes. Hang on, haven’t we also got some funds in the deposit account? Couldn’t we use some of that to weather the storm?
David: That’s the money we have set aside for the padel court.
George (grumbles): In my day farmers just did farming…
David (smiles): We’re diversifying, remember grandad! I know work has started on the conversion, but I don’t think we should eat
into that pot to pay for general costs, as it will delay the completion date, as well as when we can start generating income from letting it out.
Henry: I agree son, we need to prioritise these diversified activities. Now more than ever, they are needed to support the farming income in difficult years. Ensors also suggested speaking with our suppliers to ask if they might extend our payment terms for certain things.
Mary: That would certainly help… there’s no harm in asking.
George: It’s hard for me to keep up with all these things, so much has changed in farming in recent years, the pressures are very different nowadays from what I experienced way back in the Dark Ages!
Mary (smiles): Perhaps they’re right then George; we should look at getting some temporary bank support. We need a buffer that’s for sure. (to Henry and David) So, how do we go about it?
Henry: We’ll need to speak to the bank as soon as possible. Ensors advised it would help if we went in prepared with cashflow forecasts to hand, for at least a year. That way we can better tailor it to what we need.
Mary: Presumably there would be loan/overdraft arrangement fees as well, depending on what we might do?
Henry: More than likely, that’s why we should have a good measure of what we may need and for how long. Hopefully that
will reduce any extra costs.
David: The bank already has a charge over partnership land, so they shouldn’t need additional security, should they?
Henry: Hopefully not, but they may need a further valuation as the last one was done several years ago if I remember rightly.
George: Hmm, yet another thing we’d be expected to pay for, no doubt?
Henry: Probably, but again it all depends on what we need…
Mary: Who do we contact at the bank? Do we even have a client manager anymore?
Henry: Ensors have very helpfully given me contact details of someone at the bank with good agricultural experience, so at least we don’t have to explain the quirks of the industry to them.
George: That’s something anyway!
David: Is it worth approaching other banks, dad?
Henry: It might be, but we need to start the process first and we can take it from there.
George: Go on then lads, you’d better get cracking on those cashflows! Now Mary, time for a nice cuppa, don’t you think?
