The current economic climate is presenting challenges for many farmers. By taking a close look at your numbers and gaining a clear understanding of your situation, you’ll be better equipped to navigate the road ahead.
We recommend working through our seven steps:
1. Establish your current position.
Provide BDO with your 2023 financial information. We might ask a few follow-up questions to get a better understanding of where you’re at.
Further ways we can help:
We can draft financial statements, prepare management information and reporting systems, and estimate tax positions.
2. Forecast where you expect to get to.
Depending on your requirements, your BDO advisor can update your last budget and cashflow projection, update the current projection, or help you prepare a new, realistic projection.
Further ways we can help:
We can update your current projection or help you to draft and fine-tune a new projection.
3. Identify anything necessary to make that forecast robust and sustainable.
If your forecast cash position is unacceptable to you or your bank, closely examine your budget for opportunities to reduce costs, weighed against the impact on income and risk requirements and options. You should also examine opportunities to turn surplus or underperforming assets into cash.
Further ways we can help:
We can act as a sounding board to test your assumptions and explore options such as income equalisation tools and tax pooling intermediaries. We can also consider other funding.
4. Communicate your plan to your support team.
Talk to your bank manager and other business stakeholders, including fellow owners, trustees, and staff. Seek their views, buy-in, and help in implementing a new plan.
Further ways we can help:
We can support with discussions you have with your bank, as well as helping to communicate the plan and negotiate any required funding lines and terms. We can assist in setting effective monitoring/reporting arrangements.
5. Reconnect with suppliers and review your plan.
Contact your suppliers and discuss the new arrangements before making the necessary changes to your farming systems. Scrutinise all expenditure and eliminate any discretionary spending that falls outside your plan.
Further ways we can help:
We can support with discussions you have with your bank, as well as helping to communicate the plan and negotiate any required funding lines and terms. We can assist in setting effective monitoring/reporting arrangements.
6. Monitor your actual performance against the plan and modify it if required.
Keep BDO updated with your financial information and help us by responding quickly to queries. As you review variations in your actual performance vs the plan, consider how this might impact any future planning. You can then modify the plan if needed and update us on changes.
Further ways we can help:
Our team can assist by preparing actual vs forecast reports, as well as discussing assumptions and implications with you.
7. Communicate your progress to your support team.
Catch up with your support team to let them know how you’re going.
Further ways we can help:
Your BDO advisor can send out your latest report and, if required, continue communications with your bank manager.
More tools and support
At BDO we know there's no ‘one way fits all’ approach and the above process will result in different actions for all our clients. Please give us a call to talk about what’s right for you and your business.
Taxation options
Tax options can vary from how and when to pay your existing tax (from using tax intermediaries, to considering tax instalment arrangements) to estimating any provisional tax payments for the 2023/24 year.
Income Equalisation Scheme options
Inland Revenue's Income Equalisation Scheme is designed to even out fluctuations in farmer income by spreading their farming income from year to year. By transferring income from a high income year to a low income year, the Scheme helps smoothen out the tax burden on farmers.
While the withdrawal of any available Income Equalisation funds may seem a ‘no brainer’, the income tax consequences do need to be understood. What might seem a little strange is that deposits into the Income Equalisation Scheme for the 2023 tax year may be an excellent way of freeing up cash flow in the short to medium term as well as producing income tax savings. The way the Income Equalisation Scheme can be used is heavily dependent on each farmer’s individual circumstances. It also requires a good understanding of the legal requirements and how they are interpreted/administered.
For more information on how the Scheme and other options might work for you, please reach out to your BDO advisor.