Dairy Business Management – Week 3

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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
Layout of a Cash Flow Budget
Jan
CASH IN
Cash sales
Loans
Total receipts
Variable Costs
Materials
Wages
Total variable costs
Other Costs
Drawings
Hire of tractor
Repairs
Utilities
Loan Repayments
Bank interest
Accountant & Ins
Feb
Mar
Apr
May
Jun
Total
200
20,000
350
871
6,391
5,800
2,786
16,398
20,000
20,200
350
871
6,391
5,800
1,193
555
1,535
767
1,193
555
1,535
767
0
0
4,050
600
600
100
600
600
100
600
1,000
4,000
200
100
600
1,581
964
600
2,786 36,398
4,050
0
263.5
160.6
50
263.5
160.6
50
300
263.5
160.6
300
50
263.5
160.6
300
50
263.5
160.6
50
150
263.5
160.6
Total fixed costs
1,024
1,174
1,674
Capital expenditure
Buildings
Equipment
Total cap expend
1,474
1,074
1,624
8,045
15,000
5,000
20,000
0
0
0
0
0
15,000
5,000
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
5
Thousands
0
Jan Feb Mar Apr May Jun
-10
Jul
Aug Sep Oct Nov Dec
Overdraft not being repaid
-20
-30
-40
-50
-60
-70
-80
7
80000
80000
60000
60000
40000
40000
20000
20000
0
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
-20000
-20000
-40000
-40000
-60000
-60000
-80000
-80000
8
80000
80000
60000
60000
40000
40000
20000
20000
0
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
-20000
-20000
-40000
-40000
-60000
-60000
-80000
-80000
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
Dairy cows report 2013/2014
Accounts
2 years ago
1 year ago
This year 2013/2014
Average all
£/Cow
£/Cow
£/Cow
£/Ha
1,890
140
-225
1,600
100
-350
2,040
130
-380
3,672
233
-684
31.38
1.99
-5.85
2,300
142
-212
1,805
1,350
1,790
3,221
27.53
2,229
0.00
2.62
10.54
0.92
0.04
0.76
14.88
151
683
41
29
84
988
PPL
£/Cow
Output
Milk Output
Calves
Less Replacements
Total Output
Variable Costs
Forage Costs
Concentrates
Vet/Medicine
Breeding Costs
Sundry Costs
Total Variable Costs
Gross Margin
Overhead Costs
Machinery depreciation
Machinery running costs
Fuel costs
Contractor charges
Building depreciation
Property repairs
Electricity
Water & Rates
Business admin costs
Miscellaneous Costs
Total common overhead costs
Total common costs
Net Margin
Paid Labour
Conacre
Finance
Total Overhead Costs*
Total Costs*
Net Profit*
*excl. Family labour
110
515
60
6
25
716
160
600
20
5
50
835
170
685
60
3
50
967
0
306
1,233
108
5
89
1,741
1,089
515
822
1,480
12.65
1,241
0.00
3.38
0.85
1.08
0.38
1.54
0.16
0.38
0.23
0.46
0.08
8.54
23.43
85
52
44
76
93
32
31
11
25
10
459
1,447
250
35
65
20
40
40
25
18
25
10
528
1,244
225
36
80
25
40
40
20
15
12
0
493
1,328
220
55
70
25
100
10
25
15
30
5
555
1,523
0
396
99
126
44
180
19
45
27
54
9
1,000
2,741
561
22
267
480
4.10
782
45
15
27
615
1,331
60
10
0
563
1,398
0
6
0
561
1,528
0
10
0
1,010
2,751
0.00
0.09
0.00
8.63
23.51
33
48
16
556
1,544
474
-48
261
470
4.02
685
24
Simplified Financial Report
Dairy cows report 2013/2014
This year
2013/2014
£/Cow
Average all
2,040
130
-380
2,300
142
-212
1,790
2,229
Variable Costs
Forage Costs
Concentrates
Vet/Medicine
Breeding Costs
Sundry Costs
Total Variable Costs
170
685
60
3
50
967
151
683
41
29
84
988
Gross Margin
822
1,241
Overhead Costs
Machinery and building depreciation
Machinery running costs, contractor
Property repairs
Electricity, Water Rates
Business admin costs
Paid Labour
Conacre
Finance
Miscellaneous Costs
Total Overhead Costs
320
150
10
40
30
0
6
0
5
561
178
172
32
42
25
33
48
16
10
556
Net Margin
261
685
Accounts
£/Cow
Output
Milk Output
Calves
Less Replacements
Total Output
25
Gross Margin
This year
2013/2014
£/Cow
Average all
2,040
130
-380
2,300
142
-212
1,790
2,229
Variable Costs
Forage Costs
Concentrates
Vet/Medicine
Breeding Costs
Sundry Costs
Total Variable Costs
170
685
60
3
50
967
151
683
41
29
84
988
Gross Margin
822
1,241
Dairy cows report 2013/2014
Accounts
£/Cow
Output
Milk Output
Calves
Less Replacements
Total Output
26
Net Margin
Overhead Costs
Machinery and building depreciation
Machinery running costs, contractor
Property repairs
Electricity, Water Rates
Business admin costs
Paid Labour
Conacre
Finance
Miscellaneous Costs
Total Overhead Costs
320
150
10
40
30
0
6
0
5
561
178
172
32
42
25
33
48
16
10
556
Net Margin
261
685

No family labour included
27
Simplified Physical Report
Dairy Cows
Physical performance
This year
2013/2014
Average all
2013/2014
120
1.82
103.00
67.13
43
28
119
2.16
87.28
55.47
30
25
31.30
33.10
6,518
662
1,203
7,334
1,616
3,386
1,200,194
4.16
3.15
206
54
692,183
4.04
3.24
246
33
Meal Fed Per Cow (Kg)
Meal Fed Per Litre (Kg)
Margin over Concentrate (£/cow)
2,635
0.40
1,348
2,573
0.34
1,724
Margin over Concentrate (ppl)
21.00
23.61
STOCK and LAND
Cow Number
Stocking Rate (CE/ha)
Total Farm Size
Land Used for Dairy Cows
Replacement Rate (%)
Culling Rate %
MILK
Milk price
(ppl sold * transport cost deducted)
Annual Production/Cow (Litres)
Milk From Forage/Cow (Litres)
Milk From Forage/Hectare (Litres)
Milk Per Labour Unit (Litres)
ButterFat %
Protein %
Average SCC ('000/ml)
Average Bactoscan ('000/ml)
CONCENTRATE FEED
28

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
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