Funding farm machinery and equipment is a commitment that any agricultural business will inevitably need to take in order to progress. When tight budgets and unavoidable external factors come into play, buying new machinery outright can be a tricky investment and one that needs to be carefully calculated.
But on balance, can you afford not to invest in new farm machinery? After all, new farm machinery that could improve efficiencies and dramatically affect your bottom line is worth investing in. Tractors, milking parlors, renewable energy systems and vital production machinery could help you achieve steadier business growth.
When it comes to farm machinery finance, you’ll need to carefully construct a plan to ensure you get the very best out of your deal. Whether you’re considering a tractor finance solution or a funding option for slurry stores, use our five tips below for funding your farm machinery – they will help you to take a firm hold of your cash flow and invest in vital farm equipment.
Current situation assessment
Where do you start when it comes to farm machinery leasing? A good place to get started is by taking a detailed look at your current business performance.
Take a closer look at how your current farm machinery is functioning and analyze how often repairs have been needed. Also, make sure to factor in the cost of fuel and contractors. This will allow you to allocate yourself and your business the budget required to keep your farm machinery in good working order and allow you to estimate how much budget will be required for any extra machinery that may be needed further down the line. You may also want to consider your workforce, and whether any future expansion could affect how and when you consider leasing farm machinery.
Another major consideration to factor into the planning stages is to look closely at your return on capital employed, or ROCE. This refers to the profitability of a business: earnings before any interest or tax is applied, divided by capital employed. This measurement focuses on the efficiency of your assets allowing you to gauge a good comparison of how your farm is performing when compared to another. Use this measurement to your advantage in order to get a better understanding of how efficient your current assets are, and how valuable an upgraded finance agreement could be for your business.
Updated business plan in place
Once you know where your business currently stands, you’ll be able to refine your future plans. By updating your business plans, you will stand in good stead to provide potential lenders and lessors with a credible reason to offer you their assistance. It should also take into account estimated times for your equipment to be repaired or replaced, as well as a detailed outline of any potential business restructures which could impact any farm equipment finance you’re considering, or already have in place.
As part of your updated business plan, you should also consider the depreciation of your farm machinery and equipment. All of these elements that make part of your updated equipment schedule should allow you to get a much better picture of which machinery you will require and at which points – helping you to gauge which farm equipment leasing contract will fit your requirements.
Consider your funding options
Maintaining a certain level of working capital is how you can help your agricultural business flourish. Where farming equipment is bought outright, you may have increased the risk of having to borrow more capital in order to cover unforeseen external factors such as extreme weather conditions. That’s where farm machinery finance can really assist you and your business.
There is a variety of farm equipment finance options available to you, such as hire purchase or finance lease. When it comes to making the decision, it is important to consider several factors:
- Is it important that you own the asset?
- Would you rather the asset appear on or off your balance sheet?
- Do you require flexibility when it comes to paying lump sums?
- How will you cope if interest rates increase?
After considering these questions, you may still have questions about the details of each possible finance option for your farm machinery. At this point, you may want to reach out to an expert in asset finance to give you all the detail you require before settling on an agricultural finance solution.
Monitor budgets and working capital continuously
Once you have considered all your financing options, and come to a decision on the right deal for you, it’s important to regularly monitor your cash flow. As an established farmer, you may have a very clear idea of your regular outgoings and income, but it always pays to keep an eye on market changes, especially if an external factor comes into play.
With the right farm equipment financing solution in place, you should find that your budget is easy to manage, with payments made over time for the use of equipment.
Get advice from industry experts
If all of this seems like a daunting task to undertake by yourself, all while managing your business on a daily basis, you may want to get the experts in. An asset finance specialist will be able to advise you on all the options you have when it comes to leasing farm machinery. They will be able to take the strain for you – calculating the best approach for you to take from the outset, as well as sourcing the equipment you’re looking for. They will manage the entire payment process and offer you payment installments that will fit in with your business payment cycle.
Please call Nationwide Corporate Finance today on 01234 240155 Apply Online for any farm finance requirement you may have, or just call one of our account manager for a friendly chat.