2.  Recap on last week  Cash and Profit  Benchmarking  Assessment

3.  Previous Session: ◦ Be able to calculate gross margins and net margins for an enterprise ◦ Know how to categorise receipts and expenditure for an enterprise  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

4. 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.

5. Layout of a Cash Flow Budget 5

6. 6

7. Overdraft not being repaid

10.  Not reinvesting in the operation or selling off assets  Low drawings ◦ Off farm income reducing the need for drawings to fund family expenses  Borrowing money  Not paying bills

11.  An expanding business with increasing assets, but few sales  High withdrawals for family living  Repaying debt rapidly  Buying next year’s inputs from this years cash ◦ e.g. prepay on fertiliser  Increase in accounts receivable ◦ have not been paid yet for product sold

12.  Vital to plan and review bank borrowing  A means of adjusting the timing of payments and income  Shows if it is feasible to continue or develop the farm business

13.  How financially viable is the farm business?  What information do you use to make management decisions?  Individual enterprise performance  BENCHMARKING is a tool to assess performance

14. CASHFLOWPROFIT ££ Sales+150,000Sales+150,000 Variable costs-75,000Variable costs-75,000 Business overheads-30,000Business overheads-30,000 Telephone bill (2/3rds to farm) -4,000Telephone bill (2/3rds to farm) -2,667 Machinery purchased (no loan) -50,000Depreciation (buildings & machinery) -10,000 Drawings & tax paid-20,000 CASH SURPLUS/ DEFICIT (after drawings & tax) -£29,000PROFIT£32,333

15.  Purpose of tax accounts - to calculate the farm business profit, which determines the amount of tax due  Purpose of management accounts – to measure efficiency of individual farm enterprises and whole farm  Neither tax or management accounts include VAT 15

16. “Helps farmers to assess their own business performance and compare their physical and financial results with other similar farms”

17.  Collect data  Analyse data  Compare your results  Identify reasons for variation  *Formulate action plan*  *Implement plan*

18.  Enterprise reports on Physical performance ◦ Look at individual enterprises  Enterprise reports on Financial performance ◦ Look at individual enterprise but can build to a whole farm report – based on profit not cash 18

19.  Output ◦ Sales ◦ Value of product grown but not yet sold  Variable costs ◦ Costs associated with production that vary depending on scale  Gross margin – (Output – Variable costs) ◦ this will show how efficient you are with raw materials needed for the enterprise e.g., Seed, fertiliser, Sprays and other variable costs  Fixed Costs – costs that do not vary with scale ◦ looking at the whole business. What is needed after variable costs. The biggest variation between farms is the amount spend on fixed costs  Labour, conacre and finance ◦ Value of your own labour, rent for land and interest and capital loan repayments  Gross Margin – (Fixed costs + LCF) = Profit!!!

20.  Group Exercise – Enterprise specific  4 or 5 key performance indicators for ◦ Physical performance ◦ Financial Performance  Include some figures about what good performance might be 20

21. 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

22. 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

23.  Farmer records data throughout the year  Data Collector gathers data once per year  Data processed  Reports generated and delivered  Local adviser helps interpret report and plan for change 23

24. Financial Performance Measures All19Greenmount Your Results 201220132014£/tonne£/Ha £/tonne £/HaAverage Main sale £165 £151 £255£2,465 £270 £3,234 Other sales £105 £108 £120£220 £132 £649 TOTAL OUTPUT£182 £133 £233£2,685 £230 £3,882 Pruning £1 £5 £4£50 £3 £46 Picking N/A £32 £46£533 £31 £515 Fertiliser £5 £9£100 £9 £144 Herbicide £2 £1 £3£33 £2 £27 Fungicide £17 £15 £34£391 £29 £497 Other sprays £4 £49 £9 £144 Other variable costs £49 £2 £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 £0.0 £1.1 £1.2£13 £2.3 £38.9 Depreciation £0.0 £0.3 £0.0£0 £1.1 £19.2 Total Specialist machinery costs £0.0 £1.3 £1.2£13 £3.4 £58.1 General Overheads Machinery £0.3 £3.0 £5.8£67 £7.7 £129 Fuel Costs £1.7 £2.9 £9.4£108 £8.1 £136 Contractor £0.1 £0.2 £1.7£20 £0.6 £11 Machinery depreciation £2.0 £4.9 £6.8£79 £15.7 £265 Total Machinery costs£4.1£12.3£25.0£287£35.5£600 Property £0.0 £0.8 £0.0£0 £1.2 £21 Building depreciation £0.0 £0.4 £0.0£0 £0.6 £10 Electricity £1.4 £0.0£0 £2.4 £40 Telephone £0.1 £0.3 £1.4£17 £0.5 £9 Insurance £1.9 £1.8 £14.2£163 £4.0 £68 Professional fees £0.6 £1.0 £6.5£75 £1.9 £33 Miscellaneous £0.3 £1.6 £1.0£11 £1.5 £25 Overhead costs less L,C & F£8.3£19.5£48.1£553£47.7£806 Labour £0.0 £1.1 £0.0 £0.5 £9 Conacre £0.4 £1.4 £6.5£75 £2.4 £41 Finance £0.0 £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

25. Gross Margin - Apples Your Results Average 20132014£/Ha £/tonne £/HaAverage Main sale£151£255£2,465£3,234 Other sales £108£120£220£649 TOTAL OUTPUT£133£233£2,685£3,882 Pruning£5£4£50£46 Picking£32£46£533£515 Fertiliser£5£9£100£144 Herbicide£1£3£33£27 Fungicide£15£34£391£497 Other sprays£4 £49£144 Other variable costs£2£0 Total Variable Costs£63£101£1,157£1,374 Gross Margin£70£133£1,528£2,509

26. Net Profit - Apples Your Results Average 20132014£/Ha £/tonne £/HaAverage Gross Margin£70£133£1,528£2,509 Machinery costs Specialist machinery Contractor£1.1£1.2£13£38.9 Depreciation£0.3£0.0£0£19.2 Total Specialist machinery costs£1.3£1.2£13£58.1 General Overheads Machinery£3.0£5.8£67£129 Fuel Costs£2.9£9.4£108£136 Contractor£0.2£1.7£20£11 Machinery depreciation£4.9£6.8£79£265 Total Machinery costs£12.3£25.0£287£600 Property£0.8£0.0£0£21 Building depreciation£0.4£0.0£0£10 Electricity£1.4£0.0£0£40 Telephone£0.3£1.4£17£9 Insurance£1.8£14.2£163£68 Professional fees£1.0£6.5£75£33 Miscellaneous£1.6£1.0£11£25 Overhead costs less L,C & F£19.5£48.1£553£806 Labour£1.1£0.0 £9 Conacre£1.4£6.5£75£41 Finance£0.0 £0 Total Overheads£22.0£55£628.0£856 TOTAL COSTS£85.3£155£1,785£2,230 Net Profit£48£78£900£1,653

27. Performance Measures Your Results Average 20132014£/Ha £/tonne £/HaAverage Yield main crop /Ha 20.29.712.0 Yield of other/Ha 14.61.84.9 Total yield/Ha 34.811.516.9 Tonnes /labour unit 42669221 Total Machinery costs£12£287£600 Machinery cost as a % of all cost 14%16%27% Physical Performance Measures

28.  Discuss the benchmark report  Compare to average figures  What are the positives?  What are the negatives?  What could be improved? 28

29. 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

30.  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

31. Wheat Barley Cattle Existing land Total Farm Gross Margin Gross margin

32. Less Gross margin Wheat Barley Cattle Existing land Overheads Profit Total Farm Gross Margin =

33. Wheat Barley Cattle Existing land ( 1 ) Total Farm Gross Margin (Increase Gross Margins) =Less Gross margin Overheads Profit

34. Wheat Barley Cattle Existing land ( 1 ) ( 2 ) Total Farm Gross Margin (Increase Gross Margins & Increase enterprise size) =Less Gross margin Overheads Profit

35. Wheat Barley Cattle Existing land ( 1 ) ( 3 ) Total Farm Gross Margin (Increase Gross Margins, Enterprise size & Reduce overheads) =Less Gross margin Overheads Profit ( 2 )

36. + = Wheat Barley Cattle Existing land Other income ( 1 ) ( 3 )( 4 ) Total Farm Gross Margin (Increase GM’s, Increase enterprise Size, Reduce Overheads and add off farm income) Less Gross margin Overheads Profit ( 2 )