There are three areas you need to examine to take control of your money:
LOOK AT THE FOLLOWING THREE AREAS TO TAKE ACTION:
1. CONTROL AND/OR REDUCE SPENDING
2. KNOCK DOWN DEBT
3. FUTURE PLAN – This is can be very personal and difficult and emotional. But this is a case of knowing what you want in life, possibly being selfish and then exploring whether this is possible by seeking advice.
TAKING CONTROL OF SPENDING
Cut discretionary spending: Reduce spending on any item that is not essential. The most likely area to save on will be wages and drawings of farm partners over and above the minimum they need to live. Discretionary spending is any spend that is not key to the day to day running and survival of the farm.
Save on Fixed Expenses: Check your utility bills, fuel, oil, internet, phones, electricity, insurances. Go online, can you save money yourself by shopping around and using online comparison sites. If you go paperless there can be substantial savings especially with phone and internet where you could save up to £400 a year. Check vets bills and shop around if you can.
Review all rents. Are they sustainable? There is no point renting land if you cannot make a profit from it. A land agent will give you guidance.
Review insurances. Do you need whole life insurance? Do you need private medical insurance? Take advice.
Police your direct debits and check you are not paying for goods and services you either no longer have or need.
Increase Income: Can you do extra work for neighbouring farms
Can you hire out kit
Charge more for existing work. Are you charging enough. It is a common mistake for people to undervalue themselves and even not cover their costs of doing agricultural work. Don’t be a busy fool. Many a time I have had somebody say to me, “ I cannot charge more to cut that hedge because so and so will do it for less.” If somebody else is prepared to work for nothing let them. Do not undervalue yourself.
Can you rent out assets? Grazing, sheds, land?
Sell Items You No Longer Need: Consider selling underutilised items and hiring in when needed.
Sell items you do not use, or even sell scrap. I once had a cattle farmer in desperate financial trouble. I walked with him around his yards and together we identified various machines and scrap that had not moved for many years. It never occurred to him to have a sort out, the proceeds were in excess of £80,000! Equally a farmer was going to scrap an old Claas Dominator for £300, I encouraged him to put it in a sale, it fetched £8,000 as the engine was put into a tractor.
Consider selling personal items to raise cash. I had one farmer that had a collection of guitars. I asked which one’s were he emotionally attached to. Of the 14 guitars he only ever played two and a third had sentimental value. The rest he sold for £14,000. Another farmer had a unique artwork that I encouraged him to get art scholars to look at, it turned out to be an important work of art worth a life changing amount. Equally small items can be sold on eBay, for example a Kew Gardens 50p can sell for over £200.
Subletting a Room for Tax Free Income: This depends upon your circumstances and how practical/desirable this is for you personally. Is your farmhouse large enough? Do you have an annex? Would you find it an intrusion on your life/privacy? You can earn up to £7500 tax free. The citizens advice bureau has guidance on this option. Subletting your home - what you need to think about first - Citizens Advice
Consider Downsizing Your Farm: This is a highly difficult and emotional area to consider. But speak to a land agent and explore what options may be practically available to you.
There are two ways to sell up a farm, one is piecemeal as cash, desire or need occurs; the other is in one single action. Both can have their place provided you understand the consequences. These need to be understood from a financial and tax point of view with your accountant; a legal point of view with your solicitor; and a practical point of view with your land agent.
Selling off your assets only works if it achieves what you want it to achieve. Too often I have seen fields sold without the farmer realising the Bank will simply use the proceeds to reduce debt with no cash left to even pay the capital gains tax. Talk to your Bank.
Ask the question, “Will this achieve what I want and/or improve my situation?” Remember money is the oil to lubricate your life. It is not just about money.
Do Not Do A Job Yourself That Can Be Done Cheaper or More Efficiently by Somebody Else: Many times I have seen a small farmer (400 acres or less) proudly show me their newly financed combine announcing that the neighbours let them do their combining, only to find they are not factoring in the purchase of the combine into the charges.
It may be that the whole of the farm could be run by a contractor more efficiently and with more profit than you doing it. Take advice and consider this. It can be a life-changer freeing you up to focus on more enjoyable or profitable activity or enabling you to earn more money elsewhere with less stress. It can also free up capital and reduce borrowing.
Vehicle Vanity : It is common for farmers to have a vehicle or vehicles that are grander or more expensive than is actually needed for practical purposes. Is your vehicle a work horse? Or are you working for your vehicle?
When my solicitor retired he had a small car. He told me he wished he had realised years ago how good smaller cars were and how cheap they are to run as he would have saved a fortune over the years.
Reduce Banking and Borrowing Costs: Get your Bank to review all your charges for both transactions and borrowing. Ask them to suggest how you could save money.
If you have given your Bank security in the form of land, having this revalued professionally by a Bank approved valuer may enable you to negotiate a better interest rate if the value has increased.
Borrow smart: All forms of borrowing have their place. Generally credit cards can be dearer than overdrafts can be dearer than loans.
Machinery finance – check you are getting a good deal on your fiancé.
Do not be afraid to ask a New Bank to look at your business or use a Broker. Your accountant and land agent should be able to help with this.
Reduce Drawings and Wages of Business Owners: This can be a highly divisive issue in a farming business. You may have older generations drawing an income in retirement whilst not contributing day to day to the farm. If you are a partner and do not wish to immediately discuss this start by looking at yourself and whether the farm is cash negative or cash positive. If the business is cash negative you will have to “grasp the nettle” and address this problem. Most larger land agents, accountants and solicitors do have professional remediator services they can refer you to. Farm charities may also help.
DEBT REDUCES THE CHOICES THAT YOU CAN MAKE WITH YOUR MONEY IN THE FUTURE
This is because you always have to at least pay the interest and eventually repay the capital of any money lent. This does not mean that debt is a bad thing, just that it needs to be borrowed with your eyes wide open and understanding that it fits in with your plans and expectations. The following compare different ways of making debt manageable.
KNOW YOUR DEBT
List all your debt as follows :
• Name of debt
• Amount of debt
• Type of debt (loan/mort/ credit card/ Finance)
• Maturity date of debt (or review date)
• Interest Rate
• Repayment amount
KNOCKING DOWN DEBT THROUGH REPAYMENT
If you have made savings in expenditure you may choose to increase repayments on some or all of your debt.
If so, consider repaying the most expensive first.
Take care that early or increased payments do not incur fees. Most Bank lending allows a 10% overpayment of debt per annum without penalty. Check with your Bank. Get advice.
Do not starve your business of cash to function day to day.
KNOCKING DOWN DEBT THROUGH CONSOLIDATION
If you have several debts it may be beneficial to effectively merge some debts into one. For example you may be able to repay your credit card and overdraft by adding them to a mortgage that has a lower interest rate. Care – this only works if you don’t subsequently increase borrowing. Also, consider whether the longer term debt fits in with your plans.
KNOCKING DOWN DEBT INTEREST ONLY
If you have difficulty affording your current debt you may ease the burden of repayment by seeing if you can have an interest only loan. Care with this option as at the end of the loan period you have to repay the full amount of the loan. If you are unable to renegotiate a new loan at that point it could force you into selling assets to repy that debt. It was common practice for Banks to lend for up to 30 years on an interest free basis relying upon either increased land prices or the next generation’s willingness to take on the debt for future repayment. Neither of these can be promised and currently most Banks prefer interest only deals to be no longer than 5 to 10 years to allow for a future change in the business or market circumstances.
Take advice possibly from your Bank manager and accountant.
KNOCKING DOWN DEBT – SELLING
Sell machinery and repay the finance on it. You may find it cheaper to use a contractor. (Remember don’t do a job yourself that can be done cheaper and more efficiently by somebody else.) Take advice from a land agent.
Sell Land Assets – Selling land to free you up from debt burden can be a great reliever of stress. But land can only be sold once and it only works if it achieves what you want it to achieve and allows you to function as you wish to in the future. Take advice from a land agent.
Sell up totally – a huge decision but one that should not be dismissed. Take advice from land agent and accountant and fully understand what this would and would not achieve for you.
ALL BECAUSE YOU ENJOY FARMING AS YOU ARE DOES NOT MEAN YOU WILL NOT ENJOY DOING SOMETHING ELSE OR DOING IT DIFFERENTLY.
Too often I have seen people so afraid to change that change eventually gets forced upon them, often in a painful or crushing way. Evolution can be good as it rewards the most adaptable.
This is the fourth and final post in this series of “Farming for Nowt”. Remember you are not alone and there are many people out there to talk to, whether friends and neighbours, professionals or one of the farming support charities:
FCN – FARMCOMMUNITY NETWORK tel: 03000 111 999 email: email@example.com
SAMARITANS tel: 116 123 email: firstname.lastname@example.org
LRSN – LINCOLNSHIRE RURAL SUPPORT NETWORK tel: 0800 138 1710 www.lrsn.co.uk
Or view the organisations in the booklet on this link: