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A guide for farmers and agriculture workers when facing financial distress and possible insolvency

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A guide for farmers and agriculture workers when facing financial distress and possible insolvency

Reviewed: 3rd June 2016

Many farm owners and agricultural workers are experiencing financial problems at the moment, largely because of factors outside their control. If you work in the farming industry, increased payroll and pension obligations, lower prices for produce, and a pound that’s faltering against the euro, could be causing serious financial issues for you and your business.   

In fact, figures provided by the Department for Environment, Food and Rural Affairs (Defra) show that in 2015 the total income from farming fell by £3.8 billion, representing a drop of 29% from the previous year.

Dairy farming badly hit

Although all types of farm are experiencing these problems, UK dairy farms in particular seem to be suffering. According to Defra figures, the income of a dairy farm has fallen by 45% in England and Wales, and as much as 80% in Northern Ireland.

A combination of factors, including a change in supply and demand, is the cause. The popularity of milk alternatives, an abundance of milk supplies globally, and a fall in prices (figures show that milk prices dropped by 21% for the year ending February 2016¹), have all created financial problems within the dairy industry.

Is there any hope of recovery?

On a more positive note, the nature of farming means that valuable assets are available to help businesses recover, offering a lifeline to farmers who have seen profits largely wiped out over recent years.

Hard assets such as vehicles, plant and machinery, as well as property and land, can be used to restructure or turn business around. Leveraging the value of your balance sheet assets, if they are wholly owned by the company, offers hope if your business is in distress or you are already facing insolvency.

What should you do if your business is in distress?

First and foremost, you need to consult an insolvency expert for professional advice. Insolvency is often seen as the death-knell for business, but this industry is highly regulated and licensed practitioners’ main aim is to prevent insolvencies wherever possible.

Our experts at Real Business Rescue have vast experience in the farming and agriculture industry. We provide tailored advice and guidance, helping you to understand your options and offering the best chance of recovery.

One option commonly used by our farming clients is asset-based lending – a type of lending that’s perfectly suited to the farming industry.

Asset-based lending - how does it work for farmers?

Balance sheet assets generally hold considerable value, and can be used as security for borrowing. The farming industry by its very nature requires expensive machinery for day-to-day work, which makes a farming business ideal for this type of borrowing.

The value of these assets can be released as a cash lump sum, helping to relieve cash flow problems or paying off existing debt that’s become too expensive to service.

Here’s a little more about why this type of lending could be beneficial for you:

  • Loan repayments are fully tax deductible, making it a cost-efficient way to borrow
  • You can budget with more certainty as the interest rate is set when the loan is taken out
  • The value of your asset is maximised before it depreciates too far
  • You’re able to use the asset(s) as normal under a sale and leaseback agreement
  • A crucial cash injection like this could save your business

What happened to the profit?

Figures in the government report show that “around a half of farms in the UK fell into the lower income brackets (less than £20,000),” and that, based on Net Farm Income, “almost a third failed to make a profit.”

With business survival at stake it’s vital to take action fast. We offer same-day consultations to quickly gain an understanding of your financial situation.

Real Business Rescue operates from 37 offices around the UK. We’re part of the Begbies Traynor Group, which is the UK’s leading business recovery practice. If you think we can help, call our team today for a same-day meeting.


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