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Business, Land Use and Finance

Best Ways To Invest £100k?

New investment activities might not be at the forefront of every business’s agenda but the alternative is stagnation and a lack of growth – the precursor of decline.
Not every business will have a spare £100k sitting as a cash reserve, but most will have the strength of balance sheet to be able to raise debt funding for new projects.
WHY?
The list is long – but it would be a challenge for a farming business not to identify with at least some of the key drivers below:

  • Rising cost of living/more drawings needed for a reasonable living standard.
  • Old age care/more paid labour needed.
  • New generations involved in the business.
  • Input inflation exceeding output inflation.
  • Greater risk in core enterprises – threats from climate change, animal disease, loss of active ingredients, etc.
  • Specific future events to pay for – weddings, retirements, ownership reorganisation.
  • Low return on capital employed in the business.
  • Insufficient margin from enterprises to cover overheads and allow proper levels of reinvestment in farm infrastructure – drainage, roads, tracks, buildings, etc.

HOW?
Active (trading) investments

  • ‘More of the same’ – if you are good at something, and have a profitable niche, then maybe expanding an existing enterprise is the right thing to do, or does this put more risk in one place?
  • New agricultural enterprises – something that is closely related to the existing business and shares an element of labour and machinery or some mutual benefit. Pig B&B arrangements are a good example.
  • New non-agricultural enterprises – Airbnb is a popular and flexible way to rent out short-term accommodation, a market that seems to know no limits in either growth or nature.

Passive (non-trading) investments

  • Property is attractive, due to the potential to gear (raise debt) against the property itself and thereby leverage the initial investment sum. Commercial property tends to offer higher returns than buy-to-let residential property although holiday lets can also look interesting, particularly if they can bring the added intangible benefit of a bolthole for stakeholders in the business to escape to for some rest and refreshment.
  • Traditional non-geared investments – stocks and shares, ISAs etc. are, of course, much lower risk and therefore also lower return so consequently will only work with surplus cash reserves, not debt raised against other assets.

As always, each situation is different; therefore generalist advice is hard to give. However, there are some commonalities:

  • Businesses need to keep investing, moving forwards and developing for long-term prosperity, security and the health and wellbeing of the stakeholders.
  • Risk and return always rise together. The key is understanding how the risks mesh with existing risks in the business and what the plan B is.
  • Borrowing costs remain very low in the context of medium/long term time horizons. Current generations may look wistfully at their forebears’ ability to buy land and build farming empires, but land at £1300/ac at 14% borrowing cost in the early 1980s costs just the same to service as land at £8000/ac at current borrowing costs.

 
To discuss medium/longer-term direction and strategy for your business, talk to William Tongue on 01536 532385 email william.tongue@berrys.uk.com or Mark Lord on 01743 290634 email mark.lord@berrys.uk.com.

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