Strutt & Parker has developed a new business analysis tool to offer rural estates insight into how they can improve the commercial performance of their business.
Too often we are all so busy working in our businesses, that we don’t have time to work on them.
However, with many rural estates facing business interruption as a result of the current lockdown, some landowners will have more time available and so now could be a good time to reassess.
The ‘Time to Review’ tool is designed to aid long-term, strategic decision-making for mixed rural businesses with let property, by quickly identifying their strengths and weaknesses in terms of a set of selected financial ratios.
It should be particularly useful for estate owners considering introducing new diversification projects, helping to offer clarity about investment decisions.
The financial ratios have been chosen as a useful starting point for discussions about whether assets are being used to their potential, set against the backdrop of a shake-up in agricultural subsidy support and changing public expectations.
But we appreciate that every landowner will have different personal objectives and the ownership of an estate should be enjoyable, as well as financially rewarding, so every conversation about the results will be different.
The ratios used include:
Efficiency – measured by the value of debtors at year end compared to the value of turnover collected throughout the year. This helps provide clarity on whether a businesses’ systems for collecting rent are working or not.
Interest cover – what is the ratio between the level of operating profit compared to bank interest due. Is the business easily able to cover its interest payments or does it need to increase its profitability/try to secure cheaper borrowing elsewhere?
Return on Capital Employed – could a business make more money if it moved its capital into higher performing asset classes?
The tool requires users to input balance sheet, profit & loss and Basic Payment Scheme information (or rent from land let with entitlements), in order to produce the ratio scores, which are displayed on a traffic light basis. Displayed below is an example pdf of how the tool will appear.
Where there is a red or amber score, the tool contains suggestions for suitable changes that the business could take to improve the ratio score.
Profitability is shown both for the current period and in 2028, when BPS support is forecast to end.
The Strutt & Parker Time to Review tool is available free of charge, just use the download button below and we will email it to you. If you want any help inputting your own data or in implementing the suggested changes then please contact the head of the rural department in your nearest Strutt & Parker office.