With most arable and dairy incomes in Mid Wales and Shropshire affected by poor commodity prices and relatively high input costs this autumn, the tax bill due in a few weeks time will undoubtedly be unwelcome, according to Rob Hudson, a partner at Morris, Marshall and Poole.
Because the bill will be based on the profit and loss account of a decent 2013/14 trading year, it could place some businesses under cash flow pressure, especially given the seasonal flow of feed, fertiliser and fuel invoices.
“The trick is to plan, not panic, and seek advice from those with an objective perspective on what working capital your business will need”, said Mr Hudson.
“The default option is usually to seek an extension to the overdraft facility. But remember this will be a negotiation where the outcome – how much and at what margin – is informed by the strength of the recent set of farm accounts, amongst other things. It is also likely to involve an annual negotiation with the bank manager.”
An alternative may be to consider a shorter term loan which can provide a more reliable source of working capital to the business or to re-structure your finances.
“This can be invaluable in overcoming short term cash flow issues, such as those caused by market fluctuations. Some loans can also allow repayments to be set to suit incomes and outgoings for that specific business.”
Mr Hudson added: “AMC’s own Flexible Facility is in effect a rolling five year loan which has a set margin and no annual reviews or price increases.
"There is a simple annual fee and the repayments can be tailored to suit cash in-flows.”
“Funds can also be drawn down to settle for example the tax bill or the feed fuel or fertiliser invoices."
Another alternative is to restructure debt onto a longer term basis which could offer cost savings over the longer term.
Borrowers should consider loans that offer a choice of interest-only or annuity repayment terms and the potential to have a capital repayment holiday from the outset.
"Fixed or variable rates of interest or combinations of ‘all of the above’ should also be considered as best suits your business need.
“Seeking advice from someone with an objective perspective on working capital needs offers real benefit. Investigating your options needs to be the first step,” said Mr Hudson.
Call Rob or one of the MMP agricultural team on 01938 554818 or 01686 626160 for more information.