Getting into contracting

How to get started as a contractor

Agricultural contracting can be a viable option for enterprising individuals, provided they go in with their eyes open, do the right research and ensure there is a market for the services proposed.

Agricultural contracting can be a viable option for enterprising individuals, provided they go in with their eyes open, do the right research and ensure there is a market for the services proposed.

Changes to the farm payment system are likely to open up more opportunities for enterprising contractors and there are likely to be exciting opportunities ahead. However, getting the costings right is a vital step to make it work. Overheads can be crippling and, with machinery replacement costs escalating 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?

Too many start-up or diversifying contractors simply try to undercut established contractors but this is no way to set up a viable business in the longer-term.

If you can identify an opportunity in your local area, you need to cost out carefully each operation, taking account of your time and machinery costs, to work out how much you need to charge for each operation, and make sure there is a profit margin. Otherwise, when it comes to replacing kit, there will be no money in the business to reinvest, not to mention that you need to draw a wage.

So, where do you start if planning to become an agricultural contractor?

NAAC’s top ten tips when starting out as a contractor

1. 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.

2. Know your costs. Make sure they are your costs, as everyone’s business and aspirations are unique, and be certain that you account for everything, including labour (and yes, that includes your time if self-employed), depreciation, fuel, maintenance, tyres, etc. The NAAC can help with our Costings calculator. Costs need to be worked out to understand the rate each job needs to be charged to break even. A margin must then be added. You should not be tempted to undercut other contractors to gain swathes of hectares, as it can quickly degenerate to 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, causing it to fail. Account for ‘dead time’ when you are not directly earning money. As a contractor, especially if employing staff, you can spend considerable time travelling or doing repairs and maintenance work, or standing in the yard waiting for better weather.

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 as a job is completed. If you are too busy, consider getting outside help to keep on top of 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! Make sure you have business terms and conditions, setting out payment times so you can collect debts.

5. Get properly insured. Inevitably, things can go wrong and you need to be properly insured for the operations you carry out. We all make mistakes but in contracting these can be expensive. The NAAC can help you to get properly insured.

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. Ensure customers provide you with any essential safety information for their premises. The NAAC can help offering all members a free Safety Management Manual

7. Look after your staff. Good staff are hard to come by in farming and it is vital that you appreciate their commitment, often working long, unsociable hours, by putting in place contracts of employment that will protect them and your business. Motivate staff by regular reviews and ensure that all necessary training and certification requirements are completed. The NAAC can help offering training and advice on employment issues.

8. Stay on the right side of the law. Keeping your vehicles on the road is essential to running a professional contracting business. Impounded vehicles can quickly lose income and it is vital to be aware of your legal commitments on- and off-road.  The NAAC can help, offering transport advice.

9. Be professional. Training and professional standards can add value to your business and you should regularly review whether your business could benefit. The NAAC’s Assured Land-Based Contractor (ALBC) Scheme is an independently assured scheme that can take away additional client pressure, if needing to supply paperwork to prove your professionalism.

10. Finally… 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.   

Business Models Handbook

A free handbook is available giving up to date, practical advice on business planning and innovation for improved productivity and profitability. The handbook is useful to those looking to enter, diversify or expand their agricultural business.

The Business Models Handbook has been published with the support of the Agricultural Productivity Task Force, a collaboration between the agricultural industry and UK Government.

The handbook is divided into five steps:

Steps 1 – 3 help with assessing the current situation and setting out business planning considerations. It offers analysis of different business models and considers how factors including access to land, people, and skills may influence business objectives.

Step 4 outlines the key business models in more detail, with links to case studies. It considers advantages of each, where they might best fit according to business requirements, and tax considerations.

Step 5 looks at longer term planning to help businesses adapt as they evolve.

Download your free copy.

NAAC Student Meeting, 12 May 2022