Transcript Document


Recap on last week

Cash and Profit

Benchmarking

Assessment

Previous Session:
◦ Be able to calculate gross margins and net margins for an enterprise
◦ Know how to categorise receipts and expenditure for an enterprise
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





Enterprises
Costs (Variable, Fixed, Capital)
Depreciation
Receipts (Enterprise, Sundry, Capital)
Margins (Gross and Net)
Cash – Can you pay your bills?
Profit – Can you fund private drawings and business
growth?
3
Cash Flow Budget (Liquidity)

Planning
A forecast of money going into and out of a
business over a specific period of time

Control
Compare actual payments with expected.
Layout of a Cash Flow Budget
Jan
CASH IN
Cash sales
Loans
Total receipts
Variable Costs
Materials
Wages
Total variable costs
Other Costs
Drawings
Hire of tractor
Repairs
Utilities
Loan Repayments
Bank interest
Accountant & Ins
Feb
Mar
Apr
May
Jun
Total
200
20,000
350
871
6,391
5,800
2,786
16,398
20,000
20,200
350
871
6,391
5,800
1,193
555
1,535
767
1,193
555
1,535
767
0
0
4,050
600
600
100
600
600
100
600
1,000
4,000
200
100
600
1,581
964
600
2,786 36,398
4,050
0
263.5
160.6
50
263.5
160.6
50
300
263.5
160.6
300
50
263.5
160.6
300
50
263.5
160.6
50
150
263.5
160.6
Total fixed costs
1,024
1,174
1,674
Capital expenditure
Buildings
Equipment
Total cap expend
1,474
1,074
1,624
8,045
15,000
5,000
20,000
0
0
0
0
0
15,000
5,000
20,000
Net Cash flow
-2,017
-1,379
-2,338
4,150
4,726
1,162
4,303
Cumulative CF
-2,017
-3,396
-5,734
-1,584
3,142
4,303
5
Thousands
0
Jan Feb Mar Apr May Jun
-10
-20
-30
-40
-50
-60
-70
-80
Overdraft not being repaid
Jul
Aug Sep Oct Nov Dec
80000
80000
60000
60000
40000
40000
20000
20000
0
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
-20000
-20000
-40000
-40000
-60000
-60000
-80000
-80000
80000
80000
60000
60000
40000
40000
20000
20000
0
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
-20000
-20000
-40000
-40000
-60000
-60000
-80000
-80000
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Not reinvesting in the operation or selling off
assets
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Low drawings
◦ Off farm income reducing the need for drawings to fund
family expenses
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Borrowing money
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Not paying bills
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An expanding business with increasing assets, but few
sales
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High withdrawals for family living
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Repaying debt rapidly
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Buying next year’s inputs from this years cash
◦ e.g. prepay on fertiliser
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Increase in accounts receivable
◦ have not been paid yet for product sold
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Vital to plan and review bank borrowing
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A means of adjusting the timing of payments and
income
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Shows if it is feasible to continue or develop the
farm business
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How financially viable is the farm business?
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What information do you use to make
management decisions?
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Individual enterprise performance
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BENCHMARKING is a tool to assess performance
CASHFLOW
PROFIT
£
Sales
+150,000
£
Sales
+150,000
Variable costs
-75,000
Variable costs
-75,000
Business overheads
-30,000
Business overheads
-30,000
Telephone bill (2/3rds to
farm)
-4,000
Telephone bill (2/3rds to
farm)
-2,667
Machinery purchased (no
loan)
-50,000
Depreciation (buildings &
machinery)
-10,000
Drawings & tax paid
-20,000
CASH SURPLUS/
DEFICIT
(after drawings &
tax)
-£29,000 PROFIT
£32,333

Purpose of tax accounts - to calculate the farm business
profit, which determines the amount of tax due
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Purpose of management accounts – to measure
efficiency of individual farm enterprises and whole farm

Neither tax or management accounts include VAT
15
“Helps farmers to assess
their own business
performance and
compare their physical
and financial results with
other similar farms”
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Collect data
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Analyse data
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Compare your results
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Identify reasons for variation
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*Formulate action plan*
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*Implement plan*
Enterprise reports on Physical performance
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◦
Look at individual enterprises
Enterprise reports on Financial performance
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◦
Look at individual enterprise but can build to a
whole farm report – based on profit not cash
18
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Output
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Variable costs
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Gross margin – (Output – Variable costs)
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Fixed Costs – costs that do not vary with scale
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Labour, conacre and finance
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Gross Margin – (Fixed costs + LCF) = Profit!!!
◦ Sales
◦ Value of product grown but not yet sold
◦ Costs associated with production that vary depending on scale
◦ this will show how efficient you are with raw materials needed for the enterprise e.g.,
Seed, fertiliser, Sprays and other variable costs
◦ looking at the whole business. What is needed after variable costs. The biggest
variation between farms is the amount spend on fixed costs
◦ Value of your own labour, rent for land and interest and capital loan repayments
Physical performance is a measure of the quantity and quality of
what you produce on your farm.
These will differ between enterprises, e.g.:
◦
◦
◦
◦
◦
Grain/Crop yield Tonnes/Ha
Straw Yield (T/Ha)
Tonnes / Labour Unit
Seed Rate Kg/Ha
Fertiliser Rate Kg/Ha
Financial performance is a measure of how much money it took
to achieve the quantity and quality of product sold from the
farm. This financial performance will be broken down into
output, variable costs, overhead costs and capital costs. This
will then produce various performance indicators e.g.:
◦
◦
◦
◦
◦
◦
Gross Margin/Ha
Gross Margin / Tonne
Total overhead costs
Overhead costs/Ha
Total cost of production/Tonne
Machinery Costs as a % of Total Costs
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Farmer records data throughout the year
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Data Collector gathers data once per year

Data processed

Reports generated and delivered

Local adviser helps interpret report and plan
for change
23
Financial Performance Measures
Main sale
Other sales
TOTAL OUTPUT
All 19 Greenmount
Your Results
2012
£/tonne
£165
£105
Your Results
2013
£/tonne
£151
£108
Your Results
2014
£/tonne
£/Ha
£255
£2,465
£120
£220
£/tonne
Average
£270
£132
£/Ha
Average
£3,234
£649
£182
£133
£233
£2,685
£230
£3,882
Pruning
Picking
Fertiliser
Herbicide
Fungicide
Other sprays
Other variable costs
£1
N/A
£5
£2
£17
£4
£49
£5
£32
£5
£1
£15
£4
£2
£4
£46
£9
£3
£34
£4
£0
£50
£533
£100
£33
£391
£49
£0
£3
£31
£9
£2
£29
£9
£0
£46
£515
£144
£27
£497
£144
£0
Total Variable Costs
£76
£63
£101
£1,157
£81
£1,374
Gross Margin
£106
£70
£133
£1,528
£149
£2,509
Machinery costs
Specialist machinery
Contractor
Depreciation
Total Specialist machinery costs
£0.0
£0.0
£0.0
£1.1
£0.3
£1.3
£1.2
£0.0
£1.2
£13
£0
£13
£2.3
£1.1
£3.4
£38.9
£19.2
£58.1
General Overheads
Machinery
Fuel Costs
Contractor
Machinery depreciation
£0.3
£1.7
£0.1
£2.0
£3.0
£2.9
£0.2
£4.9
£5.8
£9.4
£1.7
£6.8
£67
£108
£20
£79
£7.7
£8.1
£0.6
£15.7
£129
£136
£11
£265
Total Machinery costs
£4.1
£12.3
£25.0
£287
£35.5
£600
Property
Building depreciation
Electricity
Telephone
Insurance
Professional fees
Miscellaneous
£0.0
£0.0
£1.4
£0.1
£1.9
£0.6
£0.3
£0.8
£0.4
£1.4
£0.3
£1.8
£1.0
£1.6
£0.0
£0.0
£0.0
£1.4
£14.2
£6.5
£1.0
£0
£0
£0
£17
£163
£75
£11
£1.2
£0.6
£2.4
£0.5
£4.0
£1.9
£1.5
£21
£10
£40
£9
£68
£33
£25
Overhead costs less L,C & F
£8.3
£19.5
£48.1
£553
£47.7
£806
Labour
Conacre
Finance
£0.0
£0.4
£0.0
£1.1
£1.4
£0.0
£0.0
£6.5
£0.0
£0.0
£75
£0.0
£0.5
£2.4
£0.0
£9
£41
£0
Total Overheads
£8.7
£22.0
£55
£628.0
£50.7
£856
TOTAL COSTS
£85.2
£85.3
£155
£1,785
£132
£2,230
Net Profit
£97.0
£48
£78
£900
£98
£1,653
Gross Margin - Apples
Your Results
2013
Your Results
2014
Average
£/Ha
£/tonne
£/tonne
£/Ha
Average
Other sales
£151
£108
£255
£120
£2,465
£220
£3,234
£649
TOTAL OUTPUT
£133
£233
£2,685
£3,882
Pruning
Picking
Fertiliser
Herbicide
Fungicide
Other sprays
Other variable costs
£5
£32
£5
£1
£15
£4
£2
£4
£46
£9
£3
£34
£4
£0
£50
£533
£100
£33
£391
£49
£0
£46
£515
£144
£27
£497
£144
£0
Total Variable Costs
£63
£101
£1,157
£1,374
Gross Margin
£70
£133
£1,528
£2,509
Main sale
Net Profit - Apples
Your Results
2013
Your Results
2014
Average
£/Ha
£/tonne
£/tonne
£/Ha
Average
£70
£133
£1,528
£2,509
£1.1
£0.3
£1.3
£1.2
£0.0
£1.2
£13
£0
£13
£38.9
£19.2
£58.1
£3.0
£2.9
£0.2
£4.9
£5.8
£9.4
£1.7
£6.8
£67
£108
£20
£79
£129
£136
£11
£265
£12.3
£25.0
£287
£600
£0.8
£0.4
£1.4
£0.3
£1.8
£1.0
£1.6
£0.0
£0.0
£0.0
£1.4
£14.2
£6.5
£1.0
£0
£0
£0
£17
£163
£75
£11
£21
£10
£40
£9
£68
£33
£25
£19.5
£48.1
£553
£806
Labour
Conacre
£1.1
£1.4
£0.0
£6.5
£0.0
£75
£9
£41
Finance
£0.0
£0.0
£0.0
£0
£22.0
£85.3
£48
£55
£155
£78
£628.0
£1,785
£900
£856
£2,230
£1,653
Gross Margin
Machinery costs
Specialist machinery
Contractor
Depreciation
Total Specialist machinery costs
General Overheads
Machinery
Fuel Costs
Contractor
Machinery depreciation
Total Machinery costs
Property
Building depreciation
Electricity
Telephone
Insurance
Professional fees
Miscellaneous
Overhead costs less L,C & F
Total Overheads
TOTAL COSTS
Net Profit
Physical Performance Measures
Performance Measures
Your
Results
2013
Your Results
2014
Average
£/Ha
£/tonne
£/Ha
Average
Yield main crop /Ha
20.2
9.7
12.0
Yield of other/Ha
14.6
1.8
4.9
Total yield/Ha
34.8
11.5
16.9
Tonnes /labour unit
426
69
221
Total Machinery costs
£12
£287
£600
Machinery cost as a % of
all cost
14%
16%
27%

Discuss the benchmark report

Compare to average figures

What are the positives?

What are the negatives?

What could be improved?
28
• Assess your own current performance
• Allocate ALL production costs
•
Gross margin is a good starting point
•
Control overhead costs
•
Identify strengths and weaknesses
• Feeds into whole farm management accounts
• Information for farm planning and decision
making
29

A process to help farmers assess their own business
performance
◦ Physical performance
◦ Financial performance

Benchmarking will identify areas for improvement

No action, No benefit
30
Gross margin
Total Farm Gross Margin
Wheat
Barley
Existing land
Cattle
Gross margin
Total Farm Gross Margin
Wheat
Less
Barley
Existing land
Cattle
Overheads
=
Profit
Total Farm Gross Margin
(Increase Gross Margins)
(1)
Gross margin
(1)
Wheat
(1)
Barley
Existing land
Cattle
Less
Overheads
=
Profit
Total Farm Gross Margin
(Increase Gross Margins & Increase enterprise size)
(1)
Gross margin
(1)
Wheat
(1)
(2)
(2)
Barley
Existing land
Cattle
Less
Overheads
=
Profit
Total Farm Gross Margin
(Increase Gross Margins, Enterprise size & Reduce overheads)
(3)
(1)
Gross margin
(1)
Wheat
(1)
(2)
(2)
Barley
Existing land
Cattle
Less
Overheads
=
Profit
Total Farm Gross Margin
(Increase GM’s, Increase enterprise Size, Reduce Overheads and
add off farm income)
(3)
(4)
(1)
Wheat
(1)
(2)
(2)
Barley
Existing land
Cattle
Less
Overheads +
Other income
Gross margin
(1)
=
Profit