1

Recap on last week

Cash and Profit

Benchmarking

Assessment

2

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

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

Jan Feb Mar Apr May Jun Total

Cash sales 200 350 871 6,391 5,800 2,786 16,39820,000 20,000

Total receipts 20,200 350 871 6,391 5,800 2,786 36,398Variable Costs

1,193 555 1,535 767 4,0500

Total variable costs 1,193 555 1,535 767 0 0 4,050Other Costs

600 600 600 600 600 1,000 4,000100 100 200

50 50 10050 300 50 50 150 600

Loan Repayments 263.5 263.5 263.5 263.5 263.5 263.5 1,581Bank interest 160.6 160.6 160.6 160.6 160.6 160.6 964Accountant & Ins 300 300 600Total fixed costs 1,024 1,174 1,674 1,474 1,074 1,624 8,045Capital expenditure

15,000 15,0005,000 5,000

Total cap expend 20,000 0 0 0 0 0 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

Loans

MaterialsWages

DrawingsHire of tractorRepairsUtilities

BuildingsEquipment

CASH IN

Layout of a Cash Flow Layout of a Cash Flow BudgetBudget

5

Overdraft not being repaid

7

8

9

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

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 creditors

◦ have not been paid yet for product sold

11

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

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

CASH 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 -3,000 Telephone bill (2/3rds to farm)

-2,000

Machinery purchased (no loan)

-50,000 Depreciation (buildings & machinery)

-15,000

Drawings & tax paid -20,000

CASH SURPLUS/DEFICIT (after drawings & tax)

-£28,000 PROFIT £28,000

14

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

“Helps farmers to assess their own business performance and

compare their physical and financial results

with other similar farms”

16

Collect data

Analyse data

Compare your results

Identify reasons for variation

*Formulate action plan*

*Implement plan*

17

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

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

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

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

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

1 year ago Average all

£/ Cow £/ Cow £/ Ha £/ Cow

1,600 2,040 3,672 31.38 2,300100 130 233 1.99 142-350 -380 -684 -5.85 -212

1,350 1,790 3,221 27.53 2,2290 0.00

160 170 306 2.62 151600 685 1,233 10.54 68320 60 108 0.92 415 3 5 0.04 2950 50 89 0.76 84

835 967 1,741 14.88 988515 822 1,480 12.65 1,241

0 0.00225 220 396 3.38 8536 55 99 0.85 5280 70 126 1.08 4425 25 44 0.38 7640 100 180 1.54 9340 10 19 0.16 3220 25 45 0.38 3115 15 27 0.23 1112 30 54 0.46 250 5 9 0.08 10

493 555 1,000 8.54 4591,328 1,523 2,741 23.43 1,447

22 267 480 4.10 782Paid Labour 60 0 0 0.00 33Conacre 10 6 10 0.09 48Finance 0 0 0 0.00 16

563 561 1,010 8.63 556 1,398 1,528 2,751 23.51 1,544-48 261 470 4.02 685

*excl. Family labour

561

Total Overhead Costs* 615Total Costs* 1,331Net Profit* 474

Total common overhead costs

45

Total common costs

15

Net Margin

27

5281,244

Water & Rates 18Business admin costs 25Miscellaneous Costs 10

Building depreciation 40Property repairs 40Electricity 25

Machinery running costs 35Fuel costs 65Contractor charges 20

Gross Margin 1,089Overhead Costs

Machinery depreciation 250

Breeding Costs 6Sundry Costs 25Total Variable Costs 716

Forage Costs 110Concentrates 515Vet/Medicine 60

Less Replacements -225Total Output 1,805

Variable Costs

OutputMilk Output 1,890Calves 140

Dairy cows report 2013/2014 2 years ago This year 2013/ 2014

Accounts £/ Cow PPL

24

This year 2013/ 2014

Average all

£/ Cow £/ Cow

2,040 2,300130 142-380 -212

1,790 2,229

170 151685 68360 413 2950 84

967 988822 1,241

320 178150 17210 3240 4230 250 336 480 165 10

561 556261 685

Miscellaneous Costs

ConacreFinance

Net MarginTotal Overhead Costs

Machinery and building depreciationMachinery running costs, contractor

Electricity, Water RatesProperty repairs

Paid LabourBusiness admin costs

Vet/MedicineBreeding Costs

Forage CostsConcentrates

Gross MarginOverhead Costs

Sundry CostsTotal Variable Costs

Dairy cows report 2013/2014

AccountsOutput

Milk Output

Total OutputVariable Costs

CalvesLess Replacements

Simplified Financial ReportSimplified Financial Report

25

This year 2013/ 2014

Average all

£/ Cow £/ Cow

2,040 2,300130 142-380 -212

1,790 2,229

170 151685 68360 413 2950 84

967 988822 1,241

Vet/MedicineBreeding Costs

Forage CostsConcentrates

Gross Margin

Sundry CostsTotal Variable Costs

Dairy cows report 2013/2014

AccountsOutput

Milk Output

Total OutputVariable Costs

CalvesLess Replacements

Gross MarginGross Margin

26

320 178150 17210 3240 4230 250 336 480 165 10

561 556261 685

Miscellaneous Costs

ConacreFinance

Net MarginTotal Overhead Costs

Machinery and building depreciationMachinery running costs, contractor

Electricity, Water RatesProperty repairs

Paid LabourBusiness admin costs

Overhead Costs

Net MarginNet Margin

No family labour included

27

Simplified Physical ReportSimplified Physical Report

28

Dairy Cows Physical performance

This year 2013/2014

Average all 2013/2014

STOCK and LAND    

Cow Number 120 119

Stocking Rate (CE/ha) 1.82 2.16

Total Farm Size 103.00 87.28

Land Used for Dairy Cows 67.13 55.47

Replacement Rate (%) 43 30

Culling Rate % 28 25MILK    

Milk price (ppl sold * transport cost deducted)

31.30 33.10

Annual Production/Cow (Litres) 6,518 7,334

Milk From Forage/Cow (Litres) 662 1,616

Milk From Forage/Hectare (Litres) 1,203 3,386

Milk Per Labour Unit (Litres) 1,200,194 692,183

ButterFat % 4.16 4.04

Protein % 3.15 3.24

Average SCC ('000/ml) 206 246

Average Bactoscan ('000/ml) 54 33CONCENTRATE FEED    

Meal Fed Per Cow (Kg) 2,635 2,573

Meal Fed Per Litre (Kg) 0.40 0.34

Margin over Concentrate (£/cow) 1,348 1,724

Margin over Concentrate (ppl) 21.00 23.61

Discuss the benchmark report

Compare to average figures

What are the positives?

What are the negatives?

What could be improved?

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

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

31