21 May 2018
The latest figures reported in March show the amount borrowed by the agricultural sector, as recorded by the Bank of England for the 12 months ended November 2017, reached a new record high of £18.6bn - up by £420m on the previous year. At first sight this may appear to be a negative statement. If the increased borrowing is short term and a means to cover poor profitability and therefore negative cash flows, then this is not a good sign, but if this is not the case, is this necessarily a bad thing?
The answer may well depend on a number of factors and so it will not be a straight yes or no.
Let’s assume that the increase is well thought out long term borrowing, which would include expanding the business, diversifying into new areas, investing in new technology to improve efficiency, or perhaps to aid succession planning. Each of these could bring greater sustainability to the business and help in preparing for the future uncertainty and resultant volatility that is predicted to be heading towards the sector as we approach Brexit, and all that that entails.
On the basis that a detailed business plan has been prepared and properly costed, the borrowings agreed with the bank and the money advanced and invested, then the only thing left to do is make it work. That's easier said than done, but reviewing your performance against budgets regularly, updating cash flow forecasts when unexpected bumps in the road occur and continuing to obtain sound professional advice along the way surely means it will be money well spent in the long term.
Future success is not just about the investment of money but also the investment of time and effort. The family, the partners and the staff have to be behind the plans for them to fully succeed. This applies as much to smaller scale businesses as it does to large and well-diversified businesses.
In summary, if any additional borrowing is about investing for future prosperity then the answer is: no, it is not a bad thing.
If you're thinking about investing or have already invested and would like an independent opinion regarding budgets, we can be of assistance. We can also provide advice to help you minimise your tax liability. Please contact your local UHY specialist who will be more than happy to help.
