Teamwork The Key To Successful Expansion

Working closely with your bank manager and following some simple fiscal rules is essential when building or expanding a livestock business.

That was the message from Dick Mason, Agricultural Policy Director for Lloyds TSB Agriculture speaking at AgriLIVE Smithfield last week.

There has been some much needed stability in beef and lamb prices in the last year or so, said Mr Mason. This provides an opportunity for farmers to plan for the future and it is important to work with your bank manager to make those plans happen.  The agriculture businesses within the Lloyds Banking Group (being AMC, Bank of Scotland and Lloyds TSB Agriculture) have the funds to help farmers drive their businesses forward and our support for the sector has seen our lending to farmers increase significantly over the previous year.

Also speaking at the seminar entitled Financing the growth of your stock business (sponsored by Lloyds TSB Agriculture, the Agricultural Mortgage Corporation and Bank of Scotland) Paul Westaway, a new entrant beef farmer, shared his experiences of developing his business.

Paul took over a Gloucestershire County Council tenancy in 2006 and has recently taken on a neighbouring council farm to accommodate his growing business. He now farms over 140 acres.

Ive got a team of advisers, accountants and other professionals that support me, said Paul. But perhaps the most important member of this team is my Lloyds TSB Agriculture bank manager, Richard Watts, who Ive worked with very closely to develop the business.

Paul and his wife, Kirsty, have 120 Aberdeen Angus cross Holstein heifers on the farm, which he rears for Blade Farming. He is also involved with the recently established Aberdeen Angus breeding company called britishangus.com.

We buy in heifers to supply the Blade contract. They enter the system at 12 days and are sold out between 14 and 17 months at a target weight of 260 kilograms. I recently worked out the average weight of stock sold in the last year as 259.8kg a head.

Like any farm business, cash flow management is key to the success of Pauls business and together with Richard Watts, he has developed a flexible approach to funding the enterprise. Paul secures funds from Lloyds TSB Agriculture based on the value of the stock coming into the herd plus the anticipated costs over the rearing and finishing period. The loan is re-paid when the cattle are finished and sold. It is an arrangement that means that the farm always has access to affordable working capital and helps maintain tight control over finance.

This is a great example of how sensible budgeting allows farmers to actively manage their cash flow to ensure there is adequate working capital and get the best possible support from the bank to expand or restructure their business, said Mr Mason.

Farmers who draw up and share their budgets with their bank manager are much better placed to identify both opportunities and areas of their business that need attention.

Mr Mason identified a number of fiscal guidelines that he encouraged farmers to employ to help ensure the financial stability of their businesses. These include doing a two year budget and testing the variables at different values, and breaking down the budget into a monthly cash flow projection.

Farmers like Paul Westaway demonstrate it is possible to build a strong livestock business if they plan well and are prepared to make the most of the opportunities that are presented to them, said Mr Mason.

At the AgriLive Smithfield Financing the growth of your stock business seminar, Dick Mason shared ten top tips for expanding a livestock business. They were:

• Expand stock to a maximum stocking as highly as possible before investing in new infrastructure will mean that extra income is being generated to pay off debts.
• Budget ruthlessly budgeting helps you understand the impact of changing livestock and input prices. Doing a two year budget and then testing it at different prices is a useful exercise.
• Monitor your cash flow break your budget down to a monthly cash flow and then monitor it against actual figures. This allows you and your bank manager to see your cash position and the future impact it will have.
• Bottom out your working capital if you are investing dont just estimate the cost of capital items such as sheds and manure systems, also estimate the cost of the extra feed, fertiliser and stock youll need.
• Minimise your risk expansion is accompanied by risk. Rearing on contract, fixing interest rates or buying inputs forward can reduce that risk.
• Manage volatility reduce debt or build up reserves in good times. Invest in systems that will improve efficiency or increase profit. Remember that volatility means rising prices as well as falling ones.
• Structure your debt dont be too optimistic. Expansion requires significant capital investment. Consider paying interest only on a new loan for 12 to 24 months. Too many farmers also structure loan repayment over too short a period of time, putting too much pressure on overdrafts.
• Keep it simple complexity rarely leads to profitability. Simple systems are usually the cheapest and easiest to manage. Innovative systems might be tempting, but ensure they add to the business.
• Good time to expand now might be a good time to bring expansion plans forward, because money is relatively cheap, and labour and materials are more readily available. On the flip side stock prices are high so consider buying younger and cheaper animals and rearing them longer.
• Keep your bank manager informed all businesses need increased support at times. By keeping in touch and creating budgets and cash flow forecasts we can identify the reason for problems and the impacts on future cash requirements, and then deal with them.

Lloyds TSB Agriculture: Lloyds TSB Agriculture provide a personalised banking service to farmers and rural businesses delivered through a network of over 90 managers experienced in agriculture, based in 43 rural offices throughout the UK. In recent years Lloyds TSB Agriculture has seen strong growth in its acquisition of new customers – the rate of customers moving to Lloyds TSB Agriculture from other banks currently stands at around 750 farmers per year.

See www.britishangus.com or call 01531 890810 for more on Paul Westaways breeding company.