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

Farmer = Manager

Workers

Management

M.D.

Typical Organisational Chart

Large businesses Farmer?

M.D. Builder

WorkerPlumber

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

GoalsGoals

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?

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The Importance of The Importance of PlanningPlanning

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.

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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 RegulationsLivestock feed supplies – Law, FSA, FQASVeterinary Medicine records - LawChemical / Pesticide records - Law

Farm Records - PhysicalFarm Records - Physical

Documents used to complete a tax return,

Bank statements and cash transactionsLoan agreementsCredit card receipts Sales and purchase invoicesInvestmentsPrivate expenses taken from account – Personal DrawingsVAT 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 recordsRetention 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 - OtherFarm Records - Other

Group ExerciseWhat information needs to be recorded before you can assess the performance of your own farm?

Performance records/stock Performance records/stock recordsrecords

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/

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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.

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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 system5.Outside the scope of VAT

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Vat Categories Summarised

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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 INCOM

E

COST OF

SALES

Opening valuation(livestock, crops, fodder,

feedstuffs andgoods in store)

+Purchases

–Closing valuation

-

GROSS PROFIT

OVERHEADS OR FIXED COSTS

NET PROFIT

-

=

Sales Milk Sales 200,000Livestock Sales 20,000

Single Farm Payment 15,000TOTAL INCOME 235,000Cost of Sales Opening stock valuation 150,000

Purchased feed 67,500Dairy variable costs 10,000Forage costs 20,000

97,500Closing stock valuation 150,000

97,500GROSS PROFIT 137,500Fixed Costs Power and machinery 32,000

Sundry overheads 10,000Depreciation 19,000Paid labour 12,000Conacre 8,000Bank charges / interest 6,000

87,000NET PROFIT 50,500

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

-

=

LIABILITIESASSETS

Long/medium term

liabilitiesFixed assets

Mortgage £55,00060 ha land @ £10,000

£600,000

Hire purchase £8,000Machinery and equipment

£40,000

    Breeding livestock £30,000

Current

liabilities  Current assets  

Overdraft £15,000 Store cattle £20,000Merchant creditors £4,000 Feed in store £2,500NET WORTH £610,500    TOTAL LIABILITIES £692,500 TOTAL ASSETS £692,500

Tax must be paid on earnings and other incomes

You must file a tax return by 31st 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 6th April 2014 to 5th 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!