Farmers must understand their cost base – and know when the cash is getting tight

lisa morgan

Like them or loathe them, we are all surrounded by numbers. Figures figure large in our lives, in our business lives and at home.  Lately, increasing prices mean it is hard to avoid the need to think about numbers that most affect you. With inflation at a 40 year high, you could say it’s more important than ever to consider how costs are affecting your life. 

As a chartered accountant, figures have been part of my professional life for longer than I care to remember.  For me, they give reassurance – a regularity and certainty that can be used to help plan and react to situations. I think you can make numbers your friends. Use them to predict, plan and record your finances.  The most difficult financial situations arise when unexpected costs have no contingency plans in place.

As the Chief Financial Officer at The AF Group, which works with over 3000 farmer Members and their businesses all over the UK, my job involves monitoring budgets, forecasting cashflows and overseeing all financial aspects of the AF co-operative. With turnover of over £285m a year, myself and my Finance team are kept very busy. Just to give you another idea of the number of numbers we see, we validate 36,000 invoices each month on behalf of Members.

The numbers in farmer spending have been changing rapidly. Recently, we have seen the price of fuel double, fertiliser treble and energy quadruple.  Understandably our farmer Members are concerned with the effect this is having on their businesses. 

My advice to them and to you is to understand your cost base.  Predict when cash may be tight by using a simple spreadsheet to forecast cash in and out for the next 12 months. Make sure you chase monies due from customers so late receipts do not cause you to miss payments to your suppliers.

You may be able to cover any forecast shortfalls in cash by an overdraft facility. I have found that it’s always better to speak with your bank manager before a situation gets out of control. Having updated financial records will help demonstrate you understand your business.

For farming, rural and other businesses there is some good news now that the government has announced support to cap energy costs for non-domestic customers as well as households. But my advice is still to keep your eye on your figures. 

Provide regular meter readings to your energy provider to ensure your bills reflect your actual and up-to-date usage.  Put a note in your diary or on your smartphone as a reminder that makes sure this the last thing you do each month until it becomes second nature to you to record the numbers on your meter(s).

At AF this month we’ve been looking at the current and future role of the Internet of Things or artificially intelligent devices to help farmers. Consider having a smart meter fitted so that readings are automatically provided on your behalf.  Plan your energy costs into your cashflows this winter to check your usage is affordable.

Whatever numbers you are looking at this weekend, make sure you have financial plans.  You may not like the numbers within your plan, but at least you understand what to expect and can act accordingly.

You know what seems odd to me?  Numbers that aren’t divisible by two. (Just thought I’d end with a riddle to give you a smile.)

Morgan, L. 2022. Farmers must understand their cost base – and know when the cash is getting tight. East Anglian Daily Times. 1 October.