Getting a clear view of the true worth of a farming business and communicating that effectively can give lenders the confidence to finance growth.
A clear understanding of the value of all the assets you have on-farm, including family members and staff, as well as land, property, stock and machinery, is essential to creating a sustainable and viable business for the future.
Often when farm businesses are evaluated for value, only material assets will be taken into account. But Charlotte Davies, head of agriculture and renewable energy finance at Shawbrook Bank, says there are other valuable assets, classed as ‘off-balance sheet’, which should not be ignored.
Charlotte says: “One farmer would not be able to run the whole business on their own. “Family and staff on-farm are, therefore, just as valuable to a business and should be viewed as such. They are as important as having a tractor.”
Just as farm businesses cannot ignore the value of assets, such as quality of staff and management teams and their experience, expertise and qualifications; it is vital these attributes are communicated to the lender and that it is willing to take them into account.
Charlotte assesses each business she works with individually, and not by simply using a box-ticking exercise, to decide if Shawbrook should lend to them, explaining specialist knowledge is key in this sector.
While a traditional ‘banker’ might not understand the background of the farm and markets, such as a dairy farmer who may have struggled during recent years, or Young Farmers looking to get into the industry, those with a specialist interest can look more carefully at the viability of the business as a whole.
She says: “For example, a farmer who has only just got a tenancy does not have threeyears of accounts. We were happy to lend to a farmer without three years of accounts because he had almost 10 years’ experience as a herdsman. He has that valuable experience.
“In the right circumstances, we can look to lend money to businesses like that. Yes, we work to certain parameters to steer us, but it does not hold us back when it is obvious it is somebody who should gain our support to help them grow.”
Having a viable succession plan is seen as another valuable ‘off-balance sheet’ asset.
Not only does the process of succession planning help those heading up the business look at the operation in the round and decide the next steps to take, it also gives confidence to prospective lenders.
Charlotte says: “Succession planning is one of the biggest parts of future-proofing. “We are living longer, but we must still make sure there are plans in place. “You never know what is around the corner. On some occasions, this has been put to the back of people’s minds because they believe they have another 20 years in them.”
Charlotte says Shawbrook also looks at assets such as dairy cows and says her understanding of the sector allows her to make judgements based on the individual business case.
For example, a dairy business may have experienced losses due to the global downturn in the market – something out of its control – but that does not mean it does not have valuable assets and a sound business plan.
She says: “We are at a point where we are comfortable with that. It is something we may still be able to offer finance on. We will go off-piste and look at unusual assets.”
Phil Bicknell, market intelligence director at AHDB, agrees it is important to look at all the resources you have available on-farm when evaluating your business, including staff.
He says: “I remember somebody saying to me you probably look at yourself as a farmer, not as someone who is looking after a range of assets.”
Taking a more holistic view of the business, including what the business objectives are, is also crucial.
While acknowledging farmers often struggle to find the time to sit down and run through planning alongside all their day-to-day work on-farm, Phil believes this is a necessity, especially with Brexit on the horizon.
Charlotte says bringing all these different elements into play can stand you in good stead for the future, while also giving you a good handle on both your strengths and weaknesses; a useful tool for all businesses.
She says this solid footing naturally helps you consider and plan for growth, whether that may be through productivity gains, diversification or expansion.
When it comes to securing finance to power that growth, it puts you one step ahead in getting the right backing.
Stepping back from the day-to-day running of the business and assessing your objectives can be a daunting task, but it does not have to be a complex, time-consuming process.
Chris Flint, of Kite Consulting, says farmers should start by asking themselves why they are running their business and look at what their key aims are.
He says: “I am a big fan of benchmarking performance. If you do not measure something, you cannot know what you are doing well or not so well.”
Chris says Kite is running various projects, including one with Arla, which bring farmers together into confidential groups to share data and discuss best practice.
He says this helps people find out what they are doing well and find solutions which can work for them.
“It is about ideas and inspiration,” Chris adds.
He also says farmers need to utilise the tools available to them to find out how resilient their businesses can be.
These are available from various organisations, such as AHDB, which has produced a Brexit impact calculator.