Quick tests can help you gauge your business' health

Technology, politics, economic relationships and consumer trends are all changing fast - and each of these can have a real impact on our businesses.

To ensure our businesses can move sustainably into this new era, our first job is to ensure we know exactly where our current farming business stands financially at this moment in time.

Challenge yourself to assess your business' financial health

So, we may have to go way back to the basics of your financial recording. To do this, it can be a good idea to test yourself. For example, can you, within two minutes, ascertain:

• How much you owe creditors
• How much your debtors owe
• Your 'true' bank balance
• The gross margin on at least one farm enterprise
• The overall profitability of your business

If you can't answer any of the above questions, then you really should ask yourself why not. 

Making Tax Digital for VAT introduced the use of digital systems for calculating and submitting VAT returns. For many years, the farm financial recording centred around the need to 'get the VAT back' but we must move forward now.

Software solutions provide a window on the state of your farm's finances

There is a variety of software available to help us with this, ranging from simple and easy to use through to those capable of providing full accounting and management information.

There are generic systems used widely throughout the business world and then specialised bespoke agricultural software systems that recognise the quirks of our farming businesses. It is imperative that, alongside the legislative requirements, we are now also able to achieve valuable management information – professionals urge farmers to 'know their figures'. Which is why it can be important to test ourselves - as suggested earlier.

Whether you have taken part in any of the recent Defra resilience programmes or if you're simply meeting with your accountant, bank manager or consultant, you will have to share your current farm accounts. Those professionals are in place to help and support you by giving effective advice on your farm business and to provide that, they have to work with accurate and detailed figures.

Ask yourself:

• How comfortable do you feel meeting the professional?
• Did you choose that particular professional or did you 'inherit' or have them forced upon you?
• Can you be certain that the figures provided are 100% accurate?
• Do you understand the terminology used by the professional?

If the answer to any of the above is no, then once again it can be really important to think why. It's only by answering these kinds of questions that you can break down the barriers to your own understanding of your business' health.

Lending only a possibility if you understand your business' books

After all, if you can't say that you fully understand the financial health of your business, then how are you going to help a bank manager understand it to such a degree that they'll let you borrow an affordable amount to help push your business forwards?

Christine will be hosting our next webinar - Understanding farm finances - at 5pm on Thursday, January 23. She'll be talking with Mel Shipley, senior Agricultural Relationship Manager at Oxbury Bank, to give you a better insight into what banks are looking for before approving any lending.

Book your FREE place by registering for the webinar here.