Agricultural contracting is an industry full of innovative individuals, always looking for the next opportunity, whilst supplying farmers with a source of skilled labour, high capital cost machinery and professional services, effectively operating as ‘farmers without land’.
It is estimated that 91% of UK farms now use a contractor, with National Association of Agricultural Contractors (NAAC) figures suggesting that contractors apply 70% of slurry, harvest 85% of sugar beet and buy 98% of self-propelled forage harvesters.
Contracting can take a number of formats from businesses offering individual specialist farming services (such as drilling, harvesting or crop spraying, either uniquely or as a package); to more complex contract, whole farm and joint farming arrangements. All have become an integral and important part of farm business management.
So where do you start if looking to become an agricultural contractor?
According to Charles Baker, Managing Director of R C Baker Ltd and NAAC Chairman, ‘Contracting can be a viable option for enterprising new entrants, providing they go in with their eyes open, do the right research and ensure there is a market for the services proposed. Commitment is essential from clients, ideally for five years if whole farm contracting, to allow for confident investment in new machinery and labour.’
‘Getting the costings right is then a vital step to make it work. Overheads can be crippling and, with machinery replacement costs escalating at 5-6% each year, it is critical that jobs are carefully calculated to make certain that capital is wisely invested and a return is possible. If it doesn’t pay, why are you doing it?’
NAAC’s Top Tips when starting out as a Contractor
- Identify a market for your services, before you invest in machinery. Try not to just offer the same services as your local, already established, contractors – a niche market is ideal. Competition is healthy but if your local contractor has loyal customers you may struggle to get work unless you seriously undercut and that is usually dangerously unsustainable (see below).
- Know your costs. Make sure they are your costs as everyone’s business and aspirations are unique and be certain you account for everything including labour (and yes that includes your time if self-employed), depreciation, fuel, maintenance, tyres etc.
Account for ‘dead time’ when you are not directly earning money. As a contractor, especially if employing staff, you can have considerable time travelling or doing repairs and maintenance work, or standing in the yard waiting for better weather.
Costs need to be worked out to know the rate each job needs to be charged to break even. A margin must then be added. You should not be tempted to under-cut other contractors just to gain swathes of hectares as it can quickly degenerate to just a short-term numbers game. Vast amounts of hectares worked mean little if there is no profit or income to reinvest, making the business unsustainable and inevitably fail.
3.Invoice promptly. There is nothing to be gained by doing 60+ hours a week in the tractor seat if your paperwork is weeks out-of-date and invoices are not being sent out. Your business will not survive without income as you will continue to be billed for finance, fuel etc. Prompt invoicing is a sign of a well-organised, professional business. If there is the opportunity, get invoices out as soon a job is completed. If you are too busy, consider getting outside help to keep on top of the paperwork.
4.Chase payment. Your customers will expect to pay when a professional job is completed. A creditor’s money is a far cheaper source of cash flow to a contractor than a loan from the bank!
5.Get Properly Insured. Inevitably things can go wrong and it is necessary to be properly insured for the operations you carry out. We all make mistakes but in contracting these can be expensive.
6.Be Safe. Working alone for long hours can be a perilous occupation, both mentally and physically. Don’t take risks, as the time saving will never be worth the price you pay by cutting corners on safety for you or your employees. Get ahead on the health and safety paperwork before the physical workload becomes too pressured, as it is important to keep up-to-date, be well aware and avoid risks.
7.Be well-informed and enjoy it! Contracting has the potential to prove a fantastic way of life if you are forward thinking and take a professional approach. Take the opportunity to network with other contractors and get as much information on legislation, safety and technical issues as you can absorb. Join the NAAC to keep up-to-date on contracting issues, giving you access to a range of services such as a transport helpline and member’s health and safety package. Get involved with meetings and training events to be social, keep you well informed and keep looking ahead to new innovative ideas and technology.