Change is healthy. But it’s not without risk, particularly in farming. Getting the whole family to agree the best way forward, obtaining consents, securing bank funding and implementing a new project without affecting the core farm business are all familiar challenges. To help farmers and landowners avoid common pitfalls, a law firm, accountant and bank have joined forces to create a 10-point plan for success.
1. The idea
Have a family discussion, collate all required information and speak to people who have already implemented a similar project. Get an idea of costs and create a draft business plan.
2. Speak to the accountant
Do rough budget projections, consider cashflow and relevant tax planning. Is the project feasible?
“You need to be proactive – it’s easier to deal with things before they happen,” says Brian Harvey, partner at accountant Francis Clark. “Look at the objective of the proposal and the tax implications, including income tax, capital gains tax (CGT) and inheritance tax (IHT). If someone is considering retiring in a few years, work succession into your plan. And consider structure and ownership of the business – it’s scary how often legal titles do not tally up with expectations.”
3. Speak to the lawyer
Ensure the business has the right legal structure. Check planning permission and other regulatory requirements. Understand potential legal issues.
“You have to think about how the project will interact with the existing business,” says Joel Woolf, head of agriculture at solicitor Foot Anstey. “What if something goes wrong? You may want to ring-fence the business so it doesn’t take the farm with it. And look at wills, power of attorney and who else has a call on the farm.”
4. Speak to the bank
Discuss the idea and future strategy. Explain the likely financial need. Take stock and decide whether or not to progress.
“We need to understand the risks and benefits – at this stage it’s all about understanding the project,” says Paul Johns, agriculture relationship director at Lloyds Bank. “We need to know how the business is operating now and how it will operate in the future; there are all sorts of practical questions that arise as a result of each change.”
Practical considerations include labour demand, financial implications of housing and feeding animals if expanding a herd, as well as slurry storage and so on. “You, and we, need to understand fully what we’re letting ourselves in for. I also like to meet with the accountant and solicitor, as it makes things a lot easier going forward.” If the loan is to be secured, assets may also have to be revalued.
5. Hold a family/business meeting
Discuss realistic costs of progressing, and whether you are all in agreement to proceed. Who will be project manager, and who will focus on the core farming business?
“So far you will have incurred limited costs,” says Mark Chanter, head of wealth services at Foot Anstey. “Now is the time to sit back with the family with a clear picture of all the implications and decide whether or not to go ahead.”
If there is any element of doubt, you need to keep talking, warns Mr Harvey. “Any project can be very stressful, and take a lot of time and effort to implement – so you really do need everyone to buy into it and know their respective roles. It’s also important not to take your eye off the ball with existing enterprises.”
6. Detailed plans and full research
Investigate grant funding. Prepare detailed budgets, costing, timing and tenders for building work.
Most projects work best when there are milestones set into a timeframe, perhaps with financial incentives for finishing on time, says Mr Harvey. “Look at the running costs of the project, not just the capital costs. Inevitably it can be attractive to take the cheapest route and cut corners – but that can be an expensive mistake. It’s about best value, not lowest cost. And identify cashflow sticking points in advance.”
Speaking to the local community is another important step, says Mr Woolf. “If the project is likely to raise concerns, engage with people and allay their fears. Don’t just launch into the planning application and expect it to sail through.” From a legal perspective, contracts must be watertight and include damages or late-finish clauses, he adds. “When budgeting, include professional fees in your projections, and don’t be afraid to negotiate a price in advance.”
7. Speak to the bank again
Take business plans, past accounts, future projections – all the information required to apply for the funding needed.
By this point, the bank will have already agreed in principle to lend – now it’s about the details, says Mr Johns. “We like to see your track record with banks and how well you’ve managed your business in the past. Have you done projects like this before – if not, how will you manage it? I’m a big fan of engaging experts such as planning consultants or quantity surveyors – in the overall scheme of things it’s a small fee that absolutely pays off.” It also provides professional indemnity insurance if things go wrong.
The bank will also want to discuss the term and repayment details of the loan, and how that tallies with retirement age and succession plans. “We’ll be looking carefully at the figures – depreciation, stock valuation and personal drawings – to make sure the plan is robust. How long will it take to break even, and how are you going to manage in the interim – is it really affordable?”
8. Prior to implementation
Check contracts with lawyers, get planning permission, sort out health and safety/regulatory issues, plus insurance.
“This is where you get all the big construction contracts in place, and ensure your wills and life insurance are up to date,” says Mr Woolf. “Keep talking to your family, as costs really start to ramp up now, so if you’re going to change your mind it should be now.” Planning for unforeseen events, such as death or divorce, will make things a lot easier should the worst happen.
9. Throughout the project
Pay attention to project costs, manage change, inform bank if projections/cashflow alter.
“It’s important to keep checking you are on target and understand the reason if actual costs or timescales differ from your budget,” says Mr Harvey. “As soon as you identify a pinch point, go to the bank and get contingency plans in place.” The bank will also want to see updated figures on a regular basis.
10. Complete the project
Start repaying bank, pay fees, review project, investigate ways to pass assets on to next generation.
“It’s easy to lose enthusiasm for a project when the build is finished, but that’s the quickest way for things to get out of hand,” says Mr Woolf. “Sit back down with the family and check where everyone is going from here – and there’s no harm in having a wash-up with your professional advisers to see how you would do things differently with future projects.”
(Source – http://www.fwi.co.uk/business/10-steps-to-successful-farm-project-planning.htm)