Presentation on theme: " Night 1 ◦ Farm Business Performance Management ◦ Record-keeping Night 2 ◦ Costs and Receipts ◦ Management accounts Night 3 ◦ Profit and Cashflow."— Presentation transcript:
Night 1 ◦ Farm Business Performance Management ◦ Record-keeping Night 2 ◦ Costs and Receipts ◦ Management accounts Night 3 ◦ Profit and Cashflow ◦ Benchmarking Night 4 ◦ Banking and Finance
Introduction What is Farm Business Management? Business Goals and Objectives Record Keeping VAT – Rules, Rates, Records Accounts – Cash Flow, Profit and Loss, Balance Sheet Tax Returns and Payments
Group Exercise What is farm business management? What has to be managed?
The control of farm resources (inputs) to reach a goal (outputs) Resources include: Land Labour Capital, e.g.machinery, buildings, livestock, feed, medicines etc. Decision making
No Control Weather Concentrate Price Fertiliser Price Carcase Price Regulations Control Fertility Genetics Forage System Farmer = Manager
Workers Management M.D. Typical Organisational Chart Large businesses Farmer? M.D. Builder Worker Plumber Mechanic Vet Stockman Manager Book keeper
What do you want out of the business? Education for children A decent standard of living Provision for retirement A healthy business to pass on to next generation Top-class herd, flock, crop Enough free time to enjoy life Goals
Goals are broad statements that show where you want to be after some period of time. Objectives are the specific steps that must be taken in order to reach goals.
Group Exercise Short term – goals that you would like to accomplish within the next year Intermediate term – goals to accomplish within one to 5 years Long term – goals that require more than 10 years to accomplish What are your goals?
11 The Importance of Planning
Farm Records Why keep records? What records do I need to keep? What records are legally required? How long must they be kept?
It’s the Law For VAT and Tax forms (HMRC) To measuring performance For making decisions; ◦ Details for management decisions: feeding, breeding, culling, selection, purchases, expansion, etc. 13
There is a crossover between the Legal requirements, FQAS, NAP, Cross Compliance and other schemes. Herd Records - Law -Births, -Deaths, -Movements, -Imports / Exports Fertiliser used – Law, NAP Regulations Livestock feed supplies – Law, FSA, FQAS Veterinary Medicine records - Law Chemical / Pesticide records - Law Farm Records - Physical
Documents used to complete a tax return, Bank statements and cash transactions Loan agreements Credit card receipts Sales and purchase invoices Investments Private expenses taken from account – Personal Drawings VAT accounts, import or export documents
Personnel File Wages & National Insurance contributions etc. Retention Period for Financial Records – 6 years after the current year Contract & employee records Retention Period – 7 years after employment ends Health & Safety Risk Assessment reports, Accident Books Retention Period – 12 years Insurance Employers liability insurance certificates Retention Period – 40 years Farm Records - Other
Group Exercise What information needs to be recorded before you can assess the performance of your own farm?
Performance records/stock records Information to record: Meal purchased/fed Service dates/ Calving dates Liveweights Carcase weights Medicine purchase/usage Field and crop records … Used for Benchmarking
Calves/cow/year Fertility/calving interval Lambs sold/ewe Kg liveweight sold/ha Average slaughter weights / carcase grades Daily liveweight gains (DLWG) Average meal fed/animal sold or per cow/ewe Stocking rate cows/ewes per ha Etc…… All this information will help to create benchmarking reports for the enterprise
VAT is a tax added to the value of certain goods (fertiliser) and services (auction fees). When certain goods and services are sold, VAT is collected by those selling. This money is then sent to HM Revenue and Customs (HMRC) www.hmrc.gov.uk/vat/ www.hmrc.gov.uk/vat/ 20
Must submit online You usually submit a VAT Return to HMRC every 3 months. The VAT Return records things for the accounting period like: ◦ your total sales and purchases ◦ the amount of VAT you owe ◦ the amount of VAT you can reclaim ◦ what your VAT refund from HMRC is You must submit a VAT Return even if you have no VAT to pay or reclaim. 21
Goods and services can be classified into five VAT groups:- 1. Standard rate - currently 20% 2. Reduced rate - currently 5% 3. Zero rate - this is not the same as exempt or outside the scope of VAT (0%) 4. Exempt – no VAT but within the VAT system 5. Outside the scope of VAT
23 Vat Categories Summarised 20
No need to submit a return Farmer can claim 4% of the value of outputs sold to VAT registered businesses 4% is not VAT but compensation for not claiming input VAT Suits farmers with low inputs and no major capital investments 24
Financial Statements ◦ Profit & Loss Account ◦ Balance Sheet Almost all farmers are either Sole Traders or in a Partnership and therefore are not required by law to keep the above accounts, but it is normal practice Your accountant will advise Adequate records are needed for completion of Self Assessment tax return and VAT returns
The Profit and Loss Account summarises the financial transactions during the accounting period (a year). A measure of how well the business is performing Used to calculate the profit generated and the tax due
= Sales + Subsidies (including SFP) + Sundry income TOTAL INCOME COST OF SALES Opening valuation (livestock, crops, fodder, feedstuffs and goods in store) + Purchases – Closing valuation - GROSS PROFIT OVERHEADS OR FIXED COSTS NET PROFIT - =
= Sales + Subsidies (including SFP) + Sundry receipts TOTAL INCOME COST OF SALES Opening valuation (livestock, crops, fodder, feedstuffs and goods in store) + Purchases – Closing valuation - GROSS PROFIT OVERHEADS OR FIXED COSTS NET PROFIT - =
Shows the financial position of the farm business. Only valid on the day it is completed. Shows what the farmer owns and what he owes. The balance sheet lists: The ASSETS of the business – fixed and current. The LIABILITIES of the business – current and long-term. How the business is FINANCED – its capital.
Value of Assets NET WORTH Value of Liabilities - =
Value of Assets NET WORTH Value of Liabilities - =
LIABILITIES ASSETS Long/medium term liabilitiesFixed assets Mortgage£55,00060 ha land @ £10,000£600,000 Hire purchase£8,000 Machinery and equipment £40,000 Breeding livestock£30,000 Current liabilities Current assets Overdraft£15,000Store cattle£20,000 Merchant creditors£4,000Feed in store£2,500 NET WORTH£610,500 TOTAL LIABILITIES£692,500TOTAL ASSETS£692,500
Tax must be paid on earnings and other incomes You must file a tax return by 31 st January each year Your accountant can file the return for you or you can do it yourself You must pay tax on profits HMRC will not wait for payment!
The current official HMRC tax year is from 6 th April 2014 to 5 th April 2015, although businesses can have different tax years. Tax rates: ◦ Everyone can earn £10,000 per year (Personal Allowance) before tax is applied ◦ Pay 20% on remaining income up to a total of £41,865 ◦ Higher rate of 40% from £41,866 to £150,000 ◦ Additional rate 45% Over £150,000 If the business is a Partnership, each partner has a Personal Allowance
Managing your business is crucial to success. Good financial and physical records are needed to manage and plan properly. Failing to plan is planning to fail!