Farm incomes could face a sharp drop this autumn due to the summer drought, so it’s important for farmers to plan ahead to minimise the financial and physical impact, says rural accountant, Mike Butler.
“There is plenty that producers can do to prepare, from raising an overdraft to pay for feed to reducing tax payments on account,” said Mr Butler, chairman of West Country-based, Old Mill.
“The drought means arable yields will be down, vegetable producers are looking at significant crop shortages, and livestock producers do not have enough forage to see them through the winter. This will have a dramatic impact on cash flow and profits.
“Higher commodity prices will go some way to alleviating this pressure, but the impact will vary from farm to farm.
“Try to think about the implications of what’s going on, and have a serious conversation about what might be the right thing to do. Have talks with your bank and accountant to see what the best solution is.”
Whether that means raising an overdraft to cover increased feed costs, or cutting stock, Mr Butler urged farmers to prepare now for reduced incomes.
“Are you getting the right tax credits,” he asked, “or could you reduce tax payments on account? Although July payments will already have been made, if you think income and therefore tax bills will be down you can choose to reduce your payments on account at any time.
“Cash flow planning will help to identify any pinch points, so you can act early to avoid them. The important thing is to understand the implications as they develop, and be proactive, rather than putting your head in the sand.”