Understand the difference between cash flow and profit
Understand and explain the principle and application of
benchmarking using worked examples

Recap on last week

Cash and Profit

Benchmarking

Assessment
A decent
standard
of living
Top-class
herd,
flock, crop
Education
for children
A healthy business
to pass on to next
generation
Provision
for
retirement

Last Week:
◦ Be able to calculate gross margins and net margins for an enterprise
◦ Know how to categorise receipts and expenditure for an enterprise





Accounts – Planning and Control
Enterprises
Costs (Variable, Fixed, Capital)
Depreciation
Margins (Gross and Net)

Cash – Can you pay your bills this month?

Profit – can you fund private drawings and business growth?
Cash Flow Budget (Liquidity)
Planning
“A forecast of money going into and out of a
business over a specific period of time”
Control
Compare actual payments with expected.
“Can you pay your bills this month?”
Thousands
0
Jan Feb Mar Apr May Jun
-10
-20
-30
-40
-50
-60
-70
-80
Overdraft not being repaid
Jul
Aug Sep Oct Nov Dec
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
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

Not reinvesting in the operation or selling assets

Low drawings
◦ Off farm income reducing the need for drawings to fund
family expenses

Borrowing money

Not paying bills

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 accounts receivable
◦ have not been paid yet for product sold

Vital to plan and review bank borrowing

A means of adjusting the timing of payments and income

Shows if it is worth while (or possible) growing or continuing
the current farm business
Poor Cash flow & Profit
Partial Budget

How healthy is the farm business?

What information do you use to make
management decisions?

Which enterprises are making money?

BENCHMARKING
CASHFLOW
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 (2/3rds to
farm)
-4,000
Telephone bill (2/3rds to
farm)
-2,667
Land purchased (no loan)
-50,000
Increase in livestock value
+10,000
Drawings & tax paid
-20,000
Depreciation (buildings &
machinery)
-10,000
CASH SURPLUS/
DEFICIT
(after drawings &
tax)
-£29,000 PROFIT
£42,333
“Helps farmers to assess
their own business
performance and
compare their physical
and financial results with
other similar farms”

Collect data

Analyse data

Compare your results

Identify reasons for variation

*Formulate action plan*

*Implement plan*

Output

Variable costs

Gross margin – (Output – Variable costs)

Fixed Costs – costs that do not vary with scale

Labour, conacre and finance

Gross Margin – (Fixed costs + LCF) = Profit!!!
◦ Sales
◦ Value of product grown but not yet sold
◦ Costs associated with production that vary depending on scale
◦ this will show how efficient you are with raw materials needed for the enterprise e.g.,
Seed, fertiliser, Sprays and other variable costs
◦ looking at the whole business. What is needed after variable costs. The biggest
variation between farms is the amount spend on fixed costs
◦ Value of your own labour, rent for land and interest and capital loan repayments
A.
Enterprise reports on Physical performance
B.
Enterprise reports on Financial performance

Group Exercise – Enterprise specific

4 or 5 key performance indicators for



Physical performance
Financial Performance
Include some figures about what good
performance might be
Physical performance is a measure of the quantity and quality of
what you produce on your farm.
These will differ between enterprises, e.g.:
◦
◦
◦
◦
◦
Grain/Crop yield Tonnes/Ha
Straw Yield (T/Ha)
Tonnes / Labour Unit
Seed Rate Kg/Ha
Fertiliser Rate Kg/Ha
B.
Financial performance is a measure of how much money it took
to achieve the quantity and quality of product sold from the
farm. This financial performance will be broken down into
output, variable costs, overhead costs and capital costs. This
will then produce various performance indicators e.g.:
◦
◦
◦
◦
◦
◦
Gross Margin/Ha
Gross Margin / Tonne
Total overhead costs
Overhead costs/Ha
Total cost of production/Tonne
Machinery Costs as a % of Total Costs
These are only a few examples. On the next few slides we will
study a real benchmark report and see the different physical and
financial performance indicators
Spring Barley report 2013/2014
2 years ago
£/Ha
1 year ago
£/Ha
1,140
441
1,581
1,248
439
1,687
939
436
1,375
165
77
242
829
260
1,089
70
103
25
52
16
266
1,315
58
182
32
37
43
352
1,335
80
123
43
49
20
315
1,060
14
22
8
9
3
55
186
78
135
39
54
15
328
762
Specialist Contractors
Depreciation Specialist Machinery
Specialist Machinery Running Cost
Specialist Machinery Fuel Cost
Total Specialist Machinery Costs
51
139
0
0
190
75
102
0
0
177
56
66
0
56
177
10
12
0
10
31
129
55
6
7
197
Contractors
Depreciation Machinery
Machinery Running Costs
Fuel Costs
Total General Machinery Costs
15
88
114
174
391
13
167
71
146
397
10
132
100
96
338
2
23
18
17
59
21
89
77
81
268
Property Repairs
Electricity
Water & Rates
Business admin costs
Miscellaneous Costs
General Building Depreciation
Total General Overhead Costs
Total common overhead costs
Net Margin
Paid Labour
Conacre
Finance
Net profit
15
21
1
53
20
17
128
709
606
0
36
0
570
8
17
8
57
11
19
120
693
641
80
40
0
521
44
23
9
62
60
26
224
740
320
69
47
0
204
8
4
2
11
11
5
39
130
56
12
8
0
36
29
9
10
33
20
20
130
595
166
39
51
6
70
Accounts
Output
Grain Output
Straw
Total Output
Variable costs
Seed
Fertiliser
Herbicide
Fungicide
Other Sprays
Total Variable Costs
Gross Margin
Specialist Machinery Costs
General Machinery Costs
General Overhead Costs
This year 2013/2014
£/Ha
£/t
Average all
£/Ha
Spring Barley report 2013/2014
1 year ago
£/Ha
Accounts
This year 2013/2014
£/Ha
£/t
Average all
£/Ha
Output
Grain Output
Straw
Total Output
1,248
439
1,687
939
436
1,375
165
77
242
829
260
1,089
58
182
32
37
43
0
352
1,335
80
123
43
49
20
0
315
1,060
14
22
8
9
3
0
55
186
78
135
39
54
15
6
328
762
Variable costs
Seed
Fertiliser
Herbicide
Fungicide
Other Sprays
Other Variable Cost
Total Variable Costs
Gross Margin
Spring Barley report 2013/2014
Accounts
Specialist Machinery Costs
1 year ago
£/Ha
This year 2013/2014
£/Ha
£/t
Average all
£/Ha
Specialist Contractors
Depreciation Specialist Machinery
Specialist Machinery Running Cost
Specialist Machinery Fuel Cost
Total Specialist Machinery Costs
75
102
0
0
177
56
66
0
56
177
10
12
0
10
31
129
55
6
7
197
Contractors
Depreciation Machinery
Machinery Running Costs
Fuel Costs
Total General Machinery Costs
13
167
71
146
397
10
132
100
96
338
2
23
18
17
59
21
89
77
81
268
Property Repairs
Electricity
Water & Rates
Business admin costs
Miscellaneous Costs
General Building Depreciation
Total General Overhead Costs
Total common overhead costs
Net Margin
8
17
8
57
11
19
120
693
641
44
23
9
62
60
26
224
740
320
8
4
2
11
11
5
39
130
56
29
9
10
33
20
20
130
595
166
General Machinery Costs
General Overhead Costs
Spring Barley report 2013/2014
Accounts
Total Output
Total Variable Costs
Gross Margin
1 year ago
£/Ha
1,687
This year 2013/2014
£/Ha
£/t
1,375
242
Average all
£/Ha
1,089
352
1,335
315
1,060
55
186
328
762
Total common overhead
costs
Net Margin
693
740
130
595
641
320
56
166
Paid Labour
Conacre
Finance
Net profit
80
40
0
521
69
47
0
204
12
8
0
36
39
51
6
70
Family Labour Value
Total Cost of Production
(including family labour)
314
1,479
482
1,653
85
290
319
1,338
Physical performance
1 year ago
This year
2013/2014
Average all
25.90
6.18
243.75
19.00
5.68
242.42
27.58
5.45
105.56
0.00
0.00
6.51
Straw yield per Ha (tonnes)
Tonnes Grain/Labour Unit
Total Tonnes Grain
% of Farmland in Combinable
Crops
4.14
443.00
160.00
62.00
4.12
266.00
108.00
64.00
2.96
487.28
153.45
52.50
% of The Above Crop in
Combinable Crop Enterprises
58.00
45.00
57.43
Total Machinery Costs as a % of
Total Costs
49.00
44.00
43.55
165.00
172.75
191.48
Land in Spring Barley (Ha)
Yield per ha (tonnes)
Straw Yield per ha (Small 17Kg
bales)
Straw yield per ha (Round 4x4 –
180kg bales)
Overall seed rate Kg/ha
N fertiliser kg/ha
Gross margin
Total Farm Gross Margin
Wheat
Barley
Existing land
Cattle
Gross margin
Total Farm Gross Margin
Wheat
Less
Barley
Existing land
Cattle
Overheads
=
Profit
Total Farm Gross Margin
(1)
Gross margin
(1)
Wheat
(1)
Barley
Existing land
Cattle
Less
Overheads
=
Profit
Total Farm Gross Margin
(1)
Gross margin
(1)
Wheat
(1)
(2)
(2)
Barley
Existing land
Cattle
Less
Overheads
=
Profit
Total Farm Gross Margin
(3)
(1)
Gross margin
(1)
Wheat
(1)
(2)
(2)
Barley
Existing land
Cattle
Less
Overheads
=
Profit
Total Farm Gross Margin
(3)
(4)
(1)
Wheat
(1)
(2)
(2)
Barley
Existing land
Cattle
Less
Overheads +
Other income
Gross margin
(1)
=
Profit
•
Benefits of Benchmarking
• Assess your own current performance
• Allocate ALL current production costs
• (Gross margin is a good starting point)
• Control fixed costs
• Identify strengths and weaknesses
• Information for farm planning and decision
making