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Managing the risks of diversification

Diversifying your business can bring several benefits, but the road may lead to a bumpy journey, especially if you are not well prepared.

 
 

Diversifying into other activities to make use of the resources available has become a serious consideration as margins are being squeezed. The latest Farm Business Survey conducted by the Government’s Department for Environment Food & Rural Affairs (DEFRA), reveals that 68% of farms had some form of diversified activity in 2021-2022. Of the farms that had diversified, this generated an additional income of over £24,400 per farm.


Diversifying covers a whole range of potential new income sources – some of which have been considered in a recent blog post from Greg Crawford on this site, however it is important to keep in mind that there are hazards that must be taken into consideration.

What are the risks?

How strong is your core business?

When looking to diversify your business it is important that the core business is resilient. Diversification is not a silver bullet to solving the businesses problems and while it can be a lifeline for some if the central business is not strong then diversifying for the sake of it risks both the core business and the new enterprise. The significance of this is that if you are applying for funding in a later phase of the project development, or for the development of another venture, it will be necessary to present your accounts and three years of failing to make a profit are not what any funding body are wanting to see.

Consider...…

Concentrating on getting your core business into the best shape possible. It may be necessary to work with a consultant to help focus on areas to focus on or how best to restructure your core business to make it resilient as possible.

Is there demand for your offering?

Market research

Marketing research

Market sizing and competition

Concept/ product testing

Market trends

Advertising/ promotion effectiveness

Market segmentation

Brand awareness

Target market identification

Brand perception

Market demand

Pricing preference/ sensitivities

Is there a demand for what you are planning? What is the market size and in what direction is the market moving? Spend some time doing some market research. It is less likely people will want to use a glamping site that overlooks an industrial estate (no matter how beautifully designed) over a wooded river valley, lake, mountain, or sea view. For any business you need to do your market research to make sure there will be demand for your new offerings and that you can sell them at a price that still makes you a profit. Diversifying your business is not simply a way to make a quick profit, you must do the necessary due diligence.

Consider...…

Carrying out extensive research of the market you are looking to enter. Take into consideration what potential competitors are doing, what are their prices/ how much they charge and how successful is their enterprise? Do not be afraid to seek professional advice from a suitable consultant. The development of a new business opportunity takes time and this step should not be rushed.

Are the resources you need available?

Just because you can do it, doesn’t mean that you can do it well or know how to sell and market it. By diversifying you’re setting up a whole new business that may require a new set of skills, as well as a making additional demand on your time. Some opportunities for diversification will play into your current skill set, others might be totally new to you and those in your business.

Consider...…

There are two main options:

  1. Retrain yourself, or someone in your current business, so you’re equipped with the right skills and knowledge to manage the new arm of your business. This could also be part of a succession plan.

  2. Bring in resources that have the required skill set. This approach may also help with funding applications, as the promise of creating more jobs within the community is usually looked upon favourably.

Whichever option is chosen, you must at all times remember not to compromise your core business and since both options will cost money make sure it is factored into your business plan.

Is the local infrastructure compatible to your needs?

Farm businesses demand a certain type of infrastructure – but it’s not necessarily one that would support something like the development of a farm shop or glamping site. Are the roads to the designated site suitable for the change in the volume of traffic and is the internet access sufficient for taking payments, making bookings etc? Also, what specialist support is there locally which may be required when setting up a new business.

Consider...…

Look at your business plan. What are your requirements for your new venture and what are the costs of getting the infrastructure installed, if indeed it is possible. As with many aspects of creating a new venture, carry out research to determine where you can access the best advice and are there are any case studies of businesses who have done something similar and have been successful that you can look at that may give you some guidance.

Is there funding availble to finance your venture?

You have a great idea, carried out your research and have developed a solid plan to diversify however, making that plan a reality is very much reliant on getting the funding. It is a common complaint that the biggest barrier is the lack of access to finance.

Consider...…

Is there a suitable funding programme available? There are competitive funding opportunities. The farm diversification grant programme has been set up to enable farming businesses to diversify into non-farming activities. In 2023, more than £168m of funding will be available through a variety of grants and the best place to find this information about these is on the Defra farming blog site and it is worth signing up for email notifications of the publication of new blog posts.

Are there obstacles in the planning process?

Creating a new venture often requires new premises or permission for change of use, whether for manufacturing new goods, opening a sales outlet or offices for additional staff.

Changes to the rural planning system (announced in June 2022) making it easier to convert disused agricultural buildings into residential properties and the permitted development rights (PDRs) (June 2021) allowing permitted changes to be made to buildings and use of land without needing planning permission, it is important to make sure that the planned changes are permitted. While the permitted development rights make it easier to convert farm buildings into commercial premises that doesn’t mean you’re guaranteed to get permission. Especially if they are not specifically for agricultural purposes.

Consider...…

Early in the planning process, you may want to speak with your local council, planning consultant or architect about your plans and it may be wise to assume in the first instance that what you want to do will require planning consent.

Have you thought about statutory and regulatory obligations?

Statutory and regulatory obligations are those that do not arise out of a contract but are imposed by law or have been put in place by government agencies. These obligations may be applicable to all aspects of the business and can be extensive and complicated. The requirements will depend on the specific nature of the proposed business, and it is very important that contracts and appointment documents make it clear whose responsibility it is to satisfy statutory and regulatory obligations and who is bearing the risk of failure to satisfy any obligation.

Consider...…

Diversification projects often require expert legal advice across the board, from strategy and planning permission to third party negotiations, documentation, and regulatory compliance. There are also many personal considerations, including asset protection and succession planning. From early on in your planning phase, look at your business plan, check what you need in terms of any statutory and regulatory obligations and where necessary seek advice.


Whatever your diversification plan, whether it involves tourism, hospitality, retail or renewable energy to make the most of existing land and resources. The possibilities are endless, but a full risk assessment and feasibility study combined with ROI calculations should be conducted before embarking on a diversification project. Throughout the rest of the transition phase, we will be revisiting diversification through further blogs and workshops to help your business.

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