New Entrants to Farming: Identifying & Grasping Business Opportunities (Argyll) – Event Summary

The first of the 2017 / 18 Argyll New Entrant Group meetings was held on Monday 11th December at the Falls of Lora Hotel, Connel.

The theme was Identifying and Grasping Business Opportunities.

Niall Campbell from SAC Consulting was the guest speaker. Niall started the evening with an overview and refresher of business accounts, gross margins and variable costs versus fixed costs to ensure all attendees had a basic understanding.

The group then went on to discuss what opportunities were available to farmers looking to expand their business and think about the advantages and disadvantages of each.

The opportunities identified by the group to start a new business of expand an existing business were:

Seasonal Lease:

Advantages

• Flexibility in both term and use
• No responsibility for the maintenance
• Cheaper than purchase

Disadvantages

• No Security, might not get land next year
• Can be higher rent due to competition
• No incentive to invest in the property ( poor fencing, drainage etc)
• Location ( away from main holding)
• No security to invest in BPS entitlement

Tenancy: (SLDT & MLDT)

Advantages

• Security of tenure
• Cheaper than purchase
• Opportunity to improve / invest in land
• Opportunity to invest in BPS entitlement

Disadvantages

• Difficult to obtain longer term MLDT
• There is an end point

Purchase:

Advantages

• Long Term Security
• Investment adds value to the asset which you benefit from
• Flexibility to farm as you like

Disadvantages

• Capital Cost- Where do you get the money?
• Long term pay back

Contract (Share) Farming:

Advantages

• Excellent way to expand business
• Split risk between ‘farmer’ & ‘contractor’
• Guaranteed income
• Profit share if do well
• Flexible and can be tailored to each situation
• Spread cost of fixed costs over more stock

Disadvantages

• You are not the ‘farmer’ so no final call on farm policy
• Split profit
• No capital asset at end of contract
• Need machinery to start

Niall then went on to explain to the group about a variety of ways that they can judge a new opportunity; Guess, Gut feeling, Cash Flow Projection, Profit & Loss Projection or a Partial Budget.

Dependant on the scale of the new project, would depend which financial forecast was most appropriate. For the purpose of the meeting, we concentrated on Partial Budgets.

The attendees were split into small groups and tasked with calculating a Partial Budget from a scenario we provided. The aim was for the groups to calculate whether the rent was justifiable. This was a good interactive session for the group and has equipped them with a useful tool for their future use.

The Farm Management Handbook was available for the group to use during the exercise and we explained that the book is now available online free of charge on the FAS website.

https://www.fas.scot/publications/farm-management-handbook-20172018/