Bonus material from Peter's interview with Simon Haley, especially on funding diversification ventures.
Simon Haley is a rural business adviser based in the north west of England.
Farming Focus is the podcast for farmers in the South West of England, but is relevant for farmers outside of the region or indeed anyone in the wider industry or who has an interest in food and farming.
For more information on Cornish Mutual visit cornishmutual.co.uk
For our podcast disclaimer click here.
Timestamps
00:01 Cornish Mutual jingle
00:15 Peter Green introduces the bonus episode.
00:50 Simon's advice on where to start with seeking funding.
04:50 Sources of finance.
07:45 The five 's's - security; serviceability; sensitivity; sustainability; sensibility.
10:02 Business plans. - tell the story.
13:12 Common mistakes with diversification.
14:46 - The 6 'd's - death, debt, dispute, disolution, disagreement; diversification
17:40 What is Simon's key piece of advice when getting a plan off the ground.
19:26 Peter Green rounds up.
Cornish Mutual. Farming insurance experts. And
welcome to this bonus episode of Farming Focus which is linked to episode four of the show. If you haven't already listened to episode four, the main show, why not go back and listen to it in full to make sure you get the most from this bonus. We're now going to hear from Simon Haley. He's a rural business advisor and director of SRH Agribusiness.
Simon will be talking about funding diversification ventures on your farms and the options available to get your project off the ground. Simon, what's your key piece of advice when it comes to planning and seeking funding for a farming venture? We talked a little bit about having a longer term view for a business.
Is, is that where you'd start? You know, there'll be people listening who are just wondering, you know, how do I start? Where do I begin? Absolutely. And the key, my key piece of advice is never underestimate. How long it might take to get through these processes. Um, I was, I was referred to the grand designs type element of, it'll always cost you twice as much, take three times as long and someone will get pregnant along the way.
I'm not necessarily saying that happens for every farming business, but definitely the time scales and the funding elements of it, it'll cost more than you think and take at least twice as you expect. If you're going for funding, acknowledging that. On paper, you shouldn't be starting that project at all until you get that grant agreement off a letter.
Well, for some of those large farming transformation from grants. So these are the ones that are normally 3550 K and above. And if that's at a 40 percent rate, you're, you're, you're nearly spending 6 figures to have that project eligible. It's bare minimum will take you probably about anywhere between 9 to 12 months as a minimum Peter.
And that's assuming that the application window is open as well. Yeah, let me give you a really good quick example here. We've just seen the latest round of the improving farm productivity grant released the one that's about robots and automation, robotics and automation. February 2022 was the last time that that grant was available.
Now, I had a sit down with a client at the start of January 2022. To talk about what they wanted to do with their dairy farm, how they could change it, incorporate the next generation. Should they invest in the parlor? Should we go into a different route? Labor was a struggle by the time we'd applied for that grant, or it came out and was available.
We'd applied for it. We then waited for it to be appraised. We then got all the way through to actually starting the project, which was May 2023. So already we are 15, 16 months down the line. We're now going through a 9 to 12 month build phase. It'll be March 2024 before those cows are going through those robots for the first time since jam 22 when we first started talking about it.
Yeah. So those grants are definitely there. It's just whether they're going to be there quick enough for you to access. And that comes back to my previous point of going, do you just chase a grant for the sake of it? Or if that diversification venture, let's say, actually stacks up commercially. Why is it left on a shelf?
You should be cracking on with it asap. Yeah. And, and actually that resonates with my own experience. So we, um, in the last year finished putting up some new industrial buildings on our farm and I'd looked to apply for leader funding for them. And it's exactly, as you say, I wasn't allowed to break any ground on the project until I'd had a grant confirmation.
The grant application was shortlisted and we had it on good advice that we would probably be successful, but there were so many hoops that we had to jump through and. I wanted to try and keep the project and the end product as flexible as possible, uh, which is a theme that we've been hearing throughout this series.
Um, then actually we decided not to go with the funding and to get it from elsewhere and just to get on with the project, because as you say, it stacked up on paper, it gave a good return. So we were better off getting that return in the bank account two years before we would have done right now. Had we waited for the grants, if people aren't able to get funding from, um, grants and things like that, they'll need to go to other sorts of lenders and other sources of finance.
Can you talk a bit about them, please? Yeah, so you've obviously got your traditional high street banks. We've seen a couple of new players to the market as well. Uh, over the past year, the problem is sometimes Peter going down that route. If you are a new business or certainly a startup business, people struggle to demonstrate that they've got a track record behind them.
Now for some, it's not too much of a problem. They'll say, well, send us your business forecasts, you know, again, coming back to the importance of having business plans and a strategy and then those financials. But it can be a large hurdle for people to get over in the 1st place. There are other sources. Um, you know, if we go down to maybe the secondary and tertiary level lending, whether it's some of this peer to peer lending, whether it is smaller grants, going back to my point of encouraging, you should go down the CPD route.
So it might not be finance up front. It might not even be a grant. It might have to be a loan at a higher rate. I think if people are wanting to get on. Their foot on the ladder in the 1st place, they should be looking every route possible. And that might be a joint venture route. It might be a share farming or a contract farming route to get there as well.
But sometimes that initial hurdle is absolutely the hardest one. Um, what I would encourage is. Everything is a competition in life, and you've got to have your head screwed on when you're going for these for these grants and opportunities. It's the same as if you will be going, let's say, for a farm business tenancy application as well.
You might get over that initial 1st hurdle. Which is well, what's your name? What's your address? What's your eligibility? You might have even had someone prepare a plan for you and you get to the 2nd stage when push comes to shove. People want to look in the whites of your eyes and know that, you know, your project inside out.
And if they believe in you. Then they're more likely to believe in the project. Now, the hard thing when you're writing a grant application or a business plan is, how do I get that across? If someone's only going to read that on the back of an email or in hard copy version. Yeah. It will be too easy for me to say, just stick a load of pictures in.
I mean, it helps and there's nothing against doing that. But then obviously it comes back to what tone of language that you use. You know, I would physician say as a consultant, make sure you stick every buzzword in nearly every sentence throughout that resilience, sustainability, volatility, brilliant.
We're taking all of those options, but you want someone to be intrigued. You want someone to go, I want to hear more about this. Either. It's a bit outside the box, and I want to know where they've come from, or this is absolutely nailed on those financials. I can see they've thought about it from a number of different ways.
And I'm a sucker for some of these nice acronyms or phrases or just things to remember that something's up quite well. Here's, here's where my five S's, it's not just because I'm called Simon, but the five S's, uh, that come into play, Peter, and this is, will be a mixture of how banks or other funding providers will traditionally assess a business.
And also a couple that I've thrown in as to where we are now in the market. So we've got serviceability. Absolutely. You need to know that a plan is able to afford that mortgage or can deal with those ongoing costs going forwards. Now, traditionally, I'd have, I'd have put security in there. Because banks lent against security of assets, it's not that anymore.
It's about the serviceability of you incurring or keeping that debt going forwards. Around that, we need to show sensitivity. What happens if the interest rate keeps going up? What happens if the milk price goes down? What happens if my costs change by a certain percentage? So we've got serviceability, And sensitivity and obviously got the buzzword.
I just mentioned of sustainability and that's not just about going to get a carbon audit done or to know about emissions in certain in certain areas of your business. It's. How well resilient is that plan to changes going forward? Is that going to be a 5, 10, 15 year plan that I'm still confident is going to be ticking some of those key boxes down the line?
How sustainable is it in a long term view? One of the most important though S's I would say is How sensible is it? Sensibility, is that something that if I'm a dairy farm and I've got some land, some buildings spare and I want to go into poultry production, for example, is that something that that bank manager would look at and go, you know what?
That's quite a sensible idea. I could see how that would move forwards. But then if I've only got a 10 acre site and suddenly I want to say that I'm going to take over the whole of the Southwest with a new contracting operation. Then. Well, really, I'm not quite sure. I believe in that plan. So that is not sensible going forwards.
So, yeah, there's S's security, serviceability, sensitivity, sustainability and sensibility. That's so helpful. Thank you very much. And, and I was going to ask, uh, is there anything else that we want to get in a business plan specifically, but really what we're saying is so long as we can cover those points and know them ourselves, don't just get somebody else to write it for them, really understand them and get into the detail.
We're on a good footing. You want to, you want to tell that story, Peter? Um, There's still something in the recess of my mind, even as an advisor doing this over 10 years, when someone says business plan, the human instinct is to go, Oh, I don't know what a business plan is. Uh, yes. And to nod and then go, Oh my God, I'm not quite sure what that means or how to pull it together.
Business plan could be a page. A business plan could literally be a glorified mission statement and a few key figures and nothing more. I would say 10 pages will do you absolutely fine. Okay. 10 pages should be able to cover nearly every single scenario. I go to 50, I go to 80 if I want, but no one's going to read those pages.
You can provide the detail if you want, if it's a three or a five year forecast, but 10 pages, and I'm not talking about Arial 79 font here, like we all did at school. Aerial 14 or 12 point font. Um, you want to give half a page on your background. You want to give half a page on your current situation. You want to give half a page on your future aspirations.
Then you incorporate those five S's by showing some financials alongside that. So a good 12 month forecast. People might ask for two or three years. Let's be honest, year two and year three will only go in that direction if year one. Happens correctly. Uh, so you want to, you want to pinpoint what those key figures are.
As I say, you want to show some sensitivity around them. So you understand what happens if the market changes and then probably pages 4, 5 to 10 are filled up with the rest of those financials showing the breakdown in the gross margins. And you've got the cash flows so you can see what the bottom line is doing.
But people shouldn't need to go past pages 1 to 3. And the reason why I'm reinforcing that, Peter, I had a bank manager say it to me about 6, 7 years ago, and rightly or wrongly, I've kind of followed this path since. They said, Simon, I want you to do my job for me. In effect, I'm having to put this proposition to my credit lending team.
You know, it's not the Ag Relationship Manager who's signing off these plans. They've got to believe in them, but they still need to get them signed off. So they need to write that commentary. If all I'm doing is sending them 50 pages of numbers, That's an extra job for them. If I can send them a 10 page business plan and the first three pages, give them everything that they can nearly lift up and put in their report, Peter.
That's win win all round for me then. Definitely. Yep. Yep. You're much more likely to have them on side if you're doing that, aren't you? So we talked there about. Planning stages and getting funding and working towards the start of, uh, this diversification. What are the main mistakes that farming businesses can make or you see most commonly when it comes to starting and, you know, the first few steps with their diversified business?
I think, I think straight off underestimating the size of that project. Peter, uh, underestimating it in terms of how long it might take to get that paperwork and those finance and that financial information together, how long it might take to apply through that grant process and how long then the RPA take on the other side in appraising it.
I think it's underestimating how much energy they might have to put into that diversification enterprise, acknowledging that 1st point. We said those 90%. Of that main core farming business income is going to come from the enterprises that are already there. We can't suddenly put 100 percent of our effort into diversification route and expect the core business to still be performing at the same rate and volume intensity.
One of them will have to suffer. You know, 1, there has to be a bit of give if we don't want it to suffer, we shouldn't be going down the diversification route in the 1st place. So I think being honest with ourselves about why we are going down that diversification route in the 1st place. Is it our choice or are we doing it Peter to combat or to counter an outside force?
As I said, what's outside our control, maybe weather, family situations, policy, why are we doing it? And. Um, if you will, uh, I've got another one for you. I've got six D's. Okay. We had five S's and now we've got six D's and this isn't just family related, but it would be nearly, uh, cover any situation about why change might happen on a farm.
Okay. They're all negative, although it might come across that way. So we've got death, debt, divorce, dispute, dissolution, disagreement. Now, if we're thinking about taking on, let's say the next door farm come up for sale, or we're wanting to put a diversification, oh, no, let's, let's let divorce, uh, sorry, dispute and disagreement sound too similar.
Let's get rid of one of those and throw in diversification. It's the most obvious one thing to think as it's the content of this podcast diversification, as we've just said there, why are we doing it in the first place? Is it our choice or someone else's choice? Number two, debt. If we are taking on a new opportunity, we might need to increase our debt portfolio.
We might not have the finance there to do it. So that's not always a negative taking on debt. Debt is there to facilitate growth and development sometimes, let's say. But we'd hope for more of the time. So first diversification, second is debt. Third and fourth, divorce and dissolution. Yes, whether it's from a personal or a business context, divorce from the personal dissolution from a business context, because it might be, uh, we've had someone, uh, in terms of separate ways, the business might go from a limited company to a partnership or from a partnership to a sole trader.
We might need to dissolve it in some way and start again. And then we've got death. And dispute death is obviously outside of the control of all of us. It happens and we have to deal with it. Dispute is a lot more inside our control. But if people are like me, and I'm just stubborn to the hilt, uh, disputes happen because we've got too much pride off often, um, uh, to say sorry, or to acknowledge that we might not be completely right in what we're saying.
And we need someone else's point of view. But nearly all of those 6Ds should cover any situation that happens on the farm beta. And as long as we are acknowledging, and it might not just be one of those boxes, maybe a situation can take 2 or 3 of those boxes at any one time. But these are strong influencing factors that will position a business and its direction forward.
Yeah, absolutely. And if listeners want to hear a little bit more about that, we covered similar areas with Heather Wildman in episode two of series one of the farming focus podcast. So if you haven't heard that it bears repeating, it was a great episode with Heather, so please check it out. Do look back, go to the Cornish mutual website and look for the farming focus podcast and go to that episode with Heather Wildman.
There's some great stuff in there as well. Simon, thanks very much for that. I think we're going to have to produce a manual to go with this episode to include all of the information. Um, just another question when we're thinking about the beginning of a scheme, what's your key piece of advice when it comes to planning and seeking funding, uh, to get that farm diversification off the ground?
Um, I think straight away, I just say, start sharing those plans with people, voice them. If we keep them in our own head, if we keep it just around the kitchen table and no further, and we talk with the two, three other people that we sit there opposite and think, well, either I'm going to raise it, but I know what the answer is, or I'm not going to raise it at all because I know what the answer is.
Often they, they get no further than the kitchen table or kitchen door. Peter, as soon as you start inviting people in. Let's get the accountant round for a proper meeting, but at the same time, let's invite the bank manager. Let's invite the planner. Let's invite the consultant. Once we start vocalizing, um, and even better putting these plans down on paper, there's an expression of wind of interest window open for a grant.
Let's stick that in. What's the worst that can happen that we get invited to the next stage and we have to talk about these plans more properly. So that's the key piece of advice. Vocalize it don't just keep referring to it as. As the thing that will save the day because it never will. It will just be talked about for the next 10 years and onwards.
Yeah, I'm a great believer in getting outside of our echo chamber and articulating our ideas to different people because that's how we get to iterate them and work them through and evolve them. And people might come up with. Different tweaks on them and things like that. So I completely agree with your suggestion there.
Cornish mutual farming insurance experts.
Thanks for listening to this bonus episode of farming focus. If you haven't already, make sure that you subscribe to the show, wherever you get your podcasts so that you don't miss any episodes in the series.