Debts and loans

The emergency fund need not be very large, in fact it would be a waste of resources if it were, to know it is there is very reassuring. I suggest one month's housekeeping and business expenses would be enough. You should never need it if you have done your calculations correctly, however, if you have fouled up and something takes a bit longer to come right or doesn't sell first time, you might need it. If you do use it to tide you over, it should be replaced as soon as the expected money arrives, otherwise next time it will be the bank manager and he will want interest as well

Estimating costs

To avoid guesswork when estimating costs for your calculations you will have to obtain genuine prices, both of items you will have to buy and of those you will have to selL The one which will have the greatest short-term effect is the price obtained for your present property (assuming you have one to sell), but you probably have a good idea of its market value. To estimate the profitability of your business ventures you will have to find out costs of raw materials, take into account overheads such as power consumed by heating, lighting or machinery. Also, less obvious expenses such as advertising and transportation can make large dents in what originally looked like a very good profit When pricing agricultural goods you will find market reports are useful These are found in the rural weekly papers and usually give a description of conditions on the day, typically a moderate entry of all categories sold to a generally brisk trade. Finished Lambs were in particularly good demand.

From this you can judge whether the prices quoted are likely to be representative. The report will then continue with prices:

Lambs: Light, max. 160.0p; average 147.9p per kilo; Standard, 192.9p, Av. 181.2p; medium 190.5p, Av. 186.9p; Heavy, 165.9p, Av. 162.3p.

You probably now have an idea of your available capital and, barring violent fluctuations in the house market, this is likely to stay fairly stable while you are house hunting. Knowing your capital you must now set about calculating how much you spend to live. This will include everything from toilet rolls to car tax and cornflakes to petrol. Do not fall into the trap of assuming milk, cheese, vegetables and all meat will instantly be produced free and in suitable quantities. These things take time. The longest you should plan to support housekeeping from original capital should be six months, though three months is better.

Set-up and running costs

Next you must calculate the set-up and running costs of your business ventures and how long it will be before they show a profit. On the agricultural side you will not see a payback in less than one year (if you are lucky) and so will not be into profit for two years - hence the need for non-agricultural ventures.

If you are planning a venture involving motor mechanics the chances are you will already have a set of tools. This is true for many hobbies/trades, but remember that when you start using those tools on a daily basis rather than just at weekends they will wear out much faster, and when you come to replace them it may be advisable to do so with professional tools rather than ones made for the DIY market. This, of course, adds to the bills but it is better to calculate the costs now rather than have something break and find you cannot afford to replace it. The time you plan to support your business should be as short as possible, between three and six months being Ukely - six being the maximum and three the ideal. If you are still supporting the business after six months, you will have to be looking at large profits to make it worth while. Be very self-critical and make sure you are not financing a lame horse.

If you are a first-time buyer, it will be very hard for you, but the potential reward is just as good.

The only ways open to you are either to buy a derelict property and rebuild it or buy a field and try to get planning permission for a dwelling.

Your chances of finding a derelict property within the price range of most first-time buyers is slim, especially as developers and builders are looking for them; however, it is not impossible. The more likely way is to buy some agricultural land without planning permission, and then ride the storm of obtaining planning consent. People have been known to put a caravan on site and hope that no one bothers to complain to the council. (We dont suggest this is the ideal method.) The one hope in all this doom is the recent relaxation of planning laws in rural areas which may make it easier to obtain permission for a small residence.

If you owe nothing to the bank you are your own master. It is advisable to clear all credit or other outstanding loans before you embark on smallholding, although difficult to do when you want all your spare cash for the project in hand; it will be almost impossible later.

The third way of purchasing your smallholding is by using partially borrowed money. This is probably the least desirable route into smallholding but the one many people will have to take (including the authors). If you wish to buy a house with a paddock it is likely that you will be able to raise a conventional mortgage on it, assuming you have a job which provides a suitable income. However, if you wish to buy a larger holding, one that is able to add something to your income, most high street building societies will inform you that they do not deal with agricultural properties. After that the banks are your next best option, but you have to show them that their money is going to be safe. What the manager will want to see is a forward projection outlining your plans for the property, initial costs, running costs and profits (you hope). Remember, the loan is secured against your home and land; if you are borrowing less than half the market value of the property the bank is on a safe bet, and however much bad press a foreclosure and forced sale will get the bank, it will certainly get them all their money back if not all of yours.

As this money dwindles it is very difficult to replace because it has probably not been earned by daily work, but by the ownership of an appreciating property. At times, property prices in parts of the country have risen in one month more than a man could earn by agricultural work in one year, so if you have spare capital take financial advice and invest it safely where it can be reached only in an emergency, ie to stop you losing your home. A safer situation in some ways is to spend most of your money on the smallholding, hence keeping it linked with the property market. This can be arranged by buying the best that you can afford, still leaving yourself enough to finance the setting up and running of the home and business until you are into profit. Purchasing the best you can afford does not necessarily mean an immaculate property needing no work, rather the one with the best potential. If it needs some repair work, remember that will not only cost money, but time as well, time that you could have used starting your business. If you are in the position of buying the smallholding outright and keeping some money for initial expenses and starting the business, this is the best way (other than having a private income, when you can play at it). You still have to meet the regular bills for gas, electricity, water, rates etc, but you can economise in most, except rates. The danger here, if you want some extra cash to finance a project, is the temptation to secure it against the property. Suddenly you are in a different ball game. Now you have monthly repayments to be met, you are at the mercy of interest rates (which inevitably go up); in short you have lost your independence.