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