Are your farm finances structured correctly?

Many farming businesses have a significant overdraft facility in place to enable continual trading through periods of natural troughs in the cash flow. Very often we see capital expenditure put on the overdraft, which can result in the negotiation of an increase in overdraft facility at the next renewal, or sometimes sooner.

The overdraft facility does have a number of advantages, most importantly it provides flexibility. However, borrowing on an overdraft facility is often an expensive way to borrow money, with high annual arrangement fees, and higher interest rates than other options. An overdraft facility also does not offer a structured repayment plan.

Restructuring of the farm finances could therefore save the farm money, but also offer a structure to repaying the debt over future years to reduce the total borrowings of the business. Establishing the amount to move from an overdraft facility to a more formal facility can be very difficult. To establish a sensible amount to transfer, it is often necessary to prepare 3 – 5 year cash flow projections to enable projection of forward bank balances.

Our Business Projector software has been designed to demonstrate the effect of different options for structuring your farm finances in a clear, easy to understand format.

If you would like to look at the options for restructuring your farm finances, or would like to investigate the best way of funding an upcoming capital purchase, please give Sam a call on 01454 614624 or 07777 696080, or email sam@kellyfarmconsulting.com.