1. ï½ Recap on last week ï½ Cash and Profit ï½ Benchmarking...

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Transcript of 1. ï½ Recap on last week ï½ Cash and Profit ï½ Benchmarking...

  • Slide 1
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  • Slide 2
  • Recap on last week Cash and Profit Benchmarking Assessment 2
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  • 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
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  • Cashflow Budget Planning A forecast of money going into and out of a business over a specific period of time Control Compare actual payments with expected 4
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  • Layout of a Cash Flow Budget 5
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  • Overdraft not being repaid 7
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  • Not reinvesting in the business or selling assets Low drawings Off farm income reducing the need for drawings to fund family expenses Borrowing money Not paying bills 10
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  • An expanding business with increasing assets, but few sales High withdrawals for family living Repaying debt rapidly Buying next years inputs from this years cash e.g. prepay on fertiliser Increase in creditors have not been paid yet for product sold 11
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  • 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 12
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  • 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 13
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  • CASHPROFIT Sales+150,000Sales+150,000 Variable costs-75,000Variable costs-75,000 Business overheads-30,000Business overheads-30,000 Telephone bill-3,000Telephone bill (2/3rds to farm) -2,000 Machinery purchased (no loan) -50,000Depreciation (buildings & machinery) -15,000 Drawings & tax paid-20,000 CASH SURPLUS/ DEFICIT (after drawings & tax) -28,000PROFIT28,000 14
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  • 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
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  • Helps farmers to assess their own business performance and compare their physical and financial results with other similar farms 16
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  • Collect data Analyse data Compare your results Identify reasons for variation *Formulate action plan* *Implement plan* 17
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  • 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
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  • Output Variable costs Costs associated with production that vary depending on scale Gross margin (Output Variable costs) how efficient you are with raw materials needed for the enterprise e.g., feed, fertiliser, vet & med and other variable costs Overhead 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 spent on overhead costs Gross Margin Overhead costs = Net Margin (Profit) 19
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  • 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
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  • Physical performance is a measure of the quantity and quality of what you produce on your farm. These will differ between enterprises, e.g.: Average milk yield/cow Butterfat and Protein percentage Calving interval Average meal fed/cow Stocking rate/ha 21
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  • Financial performance is a measure of the costs of production in relation to the value of output. Financial performance is broken down into output, variable costs, overhead costs and capital costs. These will produce various performance indicators e.g.: Individual costs /cow Gross margin/cow Gross margin/ha Total overhead costs Overhead costs/cow Total cost of production/litre Margin over concentrate (MOC) 22
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  • 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
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  • Simplified Financial Report 25
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  • Gross Margin 26
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  • Net Margin No family labour included 27
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  • Simplified Physical Report 28 Dairy Cows Physical performance This year 2013/2014 Average all 2013/2014 STOCK and LAND Cow Number120119 Stocking Rate (CE/ha)1.822.16 Total Farm Size103.0087.28 Land Used for Dairy Cows67.1355.47 Replacement Rate (%)4330 Culling Rate %2825 MILK Milk price (ppl sold * transport cost deducted) 31.3033.10 Annual Production/Cow (Litres)6,5187,334 Milk From Forage/Cow (Litres)6621,616 Milk From Forage/Hectare (Litres)1,2033,386 Milk Per Labour Unit (Litres)1,200,194692,183 ButterFat %4.164.04 Protein %3.153.24 Average SCC ('000/ml)206246 Average Bactoscan ('000/ml)5433 CONCENTRATE FEED Meal Fed Per Cow (Kg)2,6352,573 Meal Fed Per Litre (Kg)0.400.34 Margin over Concentrate (/cow)1,3481,724 Margin over Concentrate (ppl)21.0023.61
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  • Discuss the benchmark report Compare to average figures What are the positives? What are the negatives? What could be improved? 29
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  • 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 30
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  • A process to help farmers assess their own business performance Physical performance Financial performance Benchmarking will identify areas for improvement No action, No benefit 31
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  • Wheat Barley Cattle Existing land Total Farm Profit Gross margin 32
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  • Less Gross margin Wheat Barley Cattle Existing land Overheads Profit Total Farm Gross Margin = 33
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  • Wheat Barley Cattle Existing land ( 1 ) Total Farm Profit =Less Gross margin Overheads Profit 34
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  • Wheat Barley Cattle Existing land ( 1 ) ( 2 ) Total Farm Profit =Less Gross margin Overheads Profit 35
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  • Wheat Barley Cattle Existing land ( 1 ) ( 3 ) Total Farm Profit =Less Gross margin Overheads Profit ( 2 ) 36
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  • + = Wheat Barley Cattle Existing land Other income ( 1 ) ( 3 )( 4 ) Total Farm Profit Less Gross margin Overheads Profit ( 2 ) 37