Cash is King

A farmer and accountant’s perspective on farm diversification

Redundant barns are a common sight on many farms, but with tighter margins, farmers are increasingly looking at unused buildings as a way to strengthen cashflow. With the right planning, they can provide reliable income, though the tax implications must be carefully managed.

Walk around almost any farmyard and you will find the same thing, a barn that once had a clear purpose but now stores a collection of items that would probably only make sense in an agricultural edition of Call My Bluff. Buildings that once housed livestock or grain gradually become storage for a farm that has evolved around them. This is an opportunity to strengthen farm cashflow.

When a farmer sits down with their accountant and maps out the business finances, a cashflow forecast tends to prompt a simple but powerful question - Are all the assets on the farm working hard enough?

Cashflow - becoming a key tool for farmers

Traditionally, many farms have operated successfully without formal forecasts, however, more farmers are now using cashflow forecasting as an active management tool and not just something produced for the bank.

A cashflow forecast sets out when money is expected to come in and go out, typically month by month. Writing it down often confirms what is already known instinctively: income is uneven, but costs are constant.

Dairy farmers face a slightly different challenge. Milk income arrives regularly, but there is little control over the selling price, meaning the focus shifts to managing costs and maintaining tight control over cashflow.

Diesel, wages, repairs, loan repayments and insurance do not wait for favourable prices or good weather. Seeing this clearly on paper can be a turning point. Once farmers start using cashflow forecasts, it changes how they view their business.

Why more farmers are using cashflow forecasts

Farmers who actively monitor cashflow often find it improves both planning and confidence in decision-making.

Spotting pressure points

A forecast highlights when cash is tight. Many farms are profitable over the year but struggle at certain points. Identifying this early allows for planning, not firefighting.

Planning input purchases

Inputs such as fertiliser, feed and seed are major expenses. A clear forecast helps time these purchases and may allow farmers to take advantage of early discounts or favourable pricing.

Managing borrowing

Most farms rely on borrowing. Forecasts show when borrowing will peak, how quickly it can be reduced, and whether further lending is realistic. Lenders increasingly expect this level of visibility.

Supporting investment decisions

Whether it is machinery, infrastructure or diversification, a forecast helps answer a key question if the business can afford it?

The real benefit comes when the forecast becomes a living document. Comparing actual performance against forecasts allows issues to be identified early, whether it is rising costs, delayed sales or unexpected repairs. Over time, this also improves accuracy, helping the business better understand its financial patterns.

Seeing the farmyard differently

Once cashflow is properly understood, farmers begin to ask whether every asset is contributing and that question frequently leads to buildings. Many farms have older barns or sheds that are structurally sound but no longer central to the operation but planning frameworks such as Class Q and Class R permitted development rights can open up new possibilities. These buildings can be repurposed into residential lets, commercial units, workshops or offices for rural businesses. The appeal is straightforward: they can generate regular, predictable monthly income, something many farm businesses lack.

Where farmers and accountants meet

Farmers often identify the opportunity. Accountants focus on making it work financially.

Diversification can introduce complexity, particularly around tax and reliefs. Traditional farming income is treated as trading income, whereas rental income is usually classed as property income. That distinction can affect the availability of certain tax reliefs.

Inheritance tax is a key consideration. Agricultural Property Relief (APR) can apply to farming assets, while diversified assets may rely on Business Property Relief (BPR). However, both are now subject to a combined cap of £2.5 million. Importantly, BPR depends on the business remaining primarily trading rather than investment-based, so diversification must be balanced carefully.

There are also opportunities. Some commercial conversions may qualify for capital allowances, particularly on integral features like heating and electrical systems. VAT planning can also significantly affect costs, with potential to recover VAT or apply reduced rates in certain residential projects.

Diversification is not about moving away from agriculture. It is about making the business more resilient, able to withstand volatility and continue into the next generation.

That barn full of forgotten equipment may not just be storage. It may be an untapped asset, one that can generate income, stabilise cashflow and help secure the future of the farm.