According to farm accountant Old Mill, many dairy producers have been re-assessing their businesses following the prolonged period of low milk prices, leading to some very positive changes. With all commodity prices now looking more optimistic, the New Year is a perfect time to examine the direction of any farming business.
“The past year has been extremely tough, particularly for farmers in the dairy sector,” says director of rural services Dan Knight. “But I’ve been encouraged by how many families are using this time to take a hard look at their personal and business strategies.”
Some businesses have found new cost efficiencies, others have drawn up succession plans, while still more have either committed to growth or refocused efforts on alternative enterprises.
But as commodity prices improve, it’s important not to allow inefficiencies to creep back in, warns Mr Knight. “With CAP reform looming in 2020, as well as the uncertainty of Brexit, we don’t know what lies ahead. Right now, the weak Pound means British agriculture could enjoy a buoyant couple of years, so it’s important to make and keep as much money as possible, in case another downturn – or loss of government support – sits on the horizon.”
In the short-term, farmers should consider how to reduce their tax liabilities ahead of the 2017 tax year-end, explains Mr Knight. They should then sit down and examine their longer-term strategy, to ensure the business is in the strongest position going forward.
“To begin with it’s essential to have a frank conversation with everyone who has an interest in the business,” he says. “Involve future generations and ensure every party is clear about their personal and business objectives; that may not be to maximise turnover, but to earn enough to have the lifestyle of choice.”
It’s also important to consider retirement provision when the older generation steps back. “They will want to be financially independent, so look at what other income they do – or potentially could – have.”
When it comes to succession planning, families often fail to recognise the distinction between being equal and fair, says Mr Knight. “Trying to split assets equally between siblings may not be fair or good for the business. If one child gets a house and an income stream, while another gets the farm, that may be a fair outcome which enables the business to continue.”
Tax planning is always a critical consideration when it comes to re-evaluating business strategy and inheritance, particularly where diversification is involved. “But it should not be the driving factor: Make the tax fit the objectives, not the other way around.”
Every business will find a different way to take advantage of emerging opportunities, explains Mr Knight. “But by having a conversation about their strategic direction families will feel more confident about the future. It’s an exciting time to move ahead.”
- For more information contact Dan Knight on 01935 709423.