All rural businesses, including farms and estates, would be in a much better financial position to plan for development by introducing the discipline of sound financial management.
Mike Harrison a partner of Saffery Champness Landed Estates & Rural Business Group says: “The level of financial controls necessary to put a small to medium sized enterprise on a secure footing and boost profitability are usually simple to implement and there are very real benefits in doing so that will show immediate results.
“The most common cause of financial problems that are seen in smaller businesses, many of which are diversified from the core estate or farm business, is one of cash flow or lack of it. It is this, rather than the poor quality of the service of product provided, or a lack of hard work, that leads to potential business failures.
“Giving your customers credit is effectively giving them an interest-free loan and is a principal cause of cash-flow problems. Obviously when invoices are unpaid that money is not available to the business and puts both the organisation and its owners under undue pressure. Matters are made worse if the business uses bank overdraft facilities as the owners are paying to give their customers free credit. As a result, unpaid invoices are not only freezing up capital, costing the business money, and preventing funds to be available for capital expansion or redevelopment.
“The best solution to cash flow problems is to implement a credit control system which ensures that the business is paid on time and also provides a check on a customer’s credit worthiness. Usually a reference from a bank, seeking specific information including the amount of credit being sought by the customer, is a first step. For larger sums a report from a credit reference agency may be appropriate and these can provide useful formation on where to target good potential customers.
“Those existing customers that are making later and later payments or change their payment patterns need to be watched as they may have their own cash flow problems”. Mike Harrison concludes.
