 Night 1 ◦ Farm Business Performance Management ◦ Record-keeping  Night 2 ◦ Costs and Receipts ◦ Management accounts  Night 3 ◦ Profit and Cashflow ◦ Benchmarking  Night 4 ◦ Banking and Finance

 Introduction  What is Farm Business Management?  Business Goals and Objectives  Record Keeping  VAT – Rules, Rates, Records  Accounts –Profit and Loss, Balance Sheet  Tax Returns and Payments

Group Exercise  What is farm business management?  What has to be managed?

 The control of farm resources (inputs) to reach a goal (outputs)  Resources include:  Land  Labour  Capital, e.g.machinery, buildings, Fertilisers, Pesticides, etc.  Decision making

 Control ◦ Crop Rotation ◦ Soil Fertility ◦ Disease Control ◦ Timing of operations ◦ Machinery policy  No Control ◦ Weather ◦ Nitrates Regulations ◦ Grain Price ◦ Input Prices FARMER = Manager

Workers Management M.D. Typical Organisational Chart Large businesses Farmer? M.D. Builder Worker Plumber Mechanic Manager Agronomist Book keeper

What do you want out of the business? Education for children A decent standard of living Provision for retirement A healthy business to pass on to next generation Top-class herd, flock, crop Enough free time to enjoy life Goals

Group Exercise  Short term – goals that you would like to accomplish within the next year  Intermediate term – goals to accomplish within one to 5 years  Long term – goals that require more than 10 years to accomplish What are your goals?

Objectives  Improve herd genetics  Improve grassland management  Reduce borrowings (overdraft)  Replace old buildings  Expand the herd  Diversify

11 The Importance of Planning

Farm Records  Why keep records?  What records do I need to keep?  What records are legally required?  How long must they be kept?

 It’s the Law  For VAT and Tax forms (HMRC)  For measuring performance  For making decisions; ◦ Details for management decisions: feeding, breeding, culling, selection, purchases, expansion, etc. 13

There is a crossover between the Legal requirements, FQAS, NAP, Cross Compliance and other schemes.  Herd Records – Law  Grain Store Hygiene - FQAS  Fertiliser used – Law, NAP Regulations  Livestock feed supplies – Law, FSA, FQAS  Chemical / Pesticide records - Law Farm Records - Physical

Documents used to complete a tax return,  Bank statements and cash transactions  Loan agreements  Credit card receipts  Sales and purchase invoices  Investments  Private expenses taken from account – Personal Drawings  VAT accounts, import or export documents

Personnel File  Wages & National Insurance contributions etc.  Retention Period for Financial Records – 6 years after the current year  Contract & employee records  Retention Period – 7 years after employment ends Health & Safety  Risk Assessment reports, Accident Books  Retention Period – 12 years Insurance  Employers liability insurance certificates  Retention Period – 40 years Farm Records - Other

Group Exercise What information needs to be recorded before you can assess the performance of your own farm?

Performance records/stock records Information to record: Field and crop records Spray records in store and used for traceability and legal requirements Crop rotations Crop yields & Prices received Soil analysis & Fertiliser applied Sprays applied Used for Benchmarking

 Gross margin £££  Crop yield  Sale price (Grain / Straw)  Machinery running costs  Crop rotations All this information will help to create benchmarking reports for the enterprise

 VAT is a tax added to the value of certain goods (fertiliser) and services (auction fees).  When certain goods and services are sold, VAT is collected by those selling. This money is then sent to HM Revenue and Customs. 

 Must submit online  You usually submit a VAT Return to HMRC every 3 months.  The VAT Return records information for the accounting period like: ◦ your total sales and purchases ◦ the amount of VAT you owe ◦ the amount of VAT you can reclaim ◦ your VAT refund / payment  You must submit a VAT Return even if you have no VAT to pay or reclaim. 21

Goods and services can be classified into five VAT groups:- 1. Standard rate - currently 20% 2. Reduced rate - currently 5% 3. Zero rate - this is not the same as exempt or outside the scope of VAT (0%) 4. Exempt – no VAT but within the VAT system 5. Outside the scope of VAT

23 Vat Categories Summarised 20

 No need to submit a return  Farmer can claim 4% of the value of outputs sold to VAT registered businesses  4% is not VAT but compensation for not claiming input VAT  Suits farmers with low inputs and no major capital investments 24

 Financial Statements ◦ Profit & Loss Account ◦ Balance Sheet  Almost all farmers are either Sole Traders or in a Partnership and therefore are not required by law to keep the above accounts, but it is normal practice  Your accountant will advise  Adequate records are needed for completion of Self Assessment tax return and VAT returns

 The Profit and Loss Account summarises the financial transactions during the accounting period (a year).  A measure of how well the business is performing  Used to calculate the profit generated and the tax due

= Sales + Subsidies (including SFP) + Sundry receipts TOTAL INCOME COST OF SALES Opening valuation (livestock, crops, fodder, feedstuffs and goods in store) + Purchases – Closing valuation - GROSS PROFIT OVERHEADS OR FIXED COSTS NET PROFIT - =

= Sales + Subsidies (including SFP) + Sundry receipts TOTAL INCOME COST OF SALES Opening valuation (livestock, crops, fodder, feedstuffs and goods in store) + Purchases – Closing valuation - GROSS PROFIT OVERHEADS OR FIXED COSTS NET PROFIT - =

 Shows the financial position of the farm business.  Only valid on the day it is completed.  Shows what the farmer owns and what he owes. The balance sheet lists:  The ASSETS of the business – fixed and current.  The LIABILITIES of the business – current and long-term.  How the business is FINANCED – its capital.

Value of Assets NET WORTH Value of Liabilities - =

Value of Assets NET WORTH Value of Liabilities - =

LIABILITIES ASSETS Long/medium term liabilitiesFixed assets Mortgage£55,00024ha £25,000£600,000 Hire purchase£8,000 Machinery and equipment £40,000 Farm vehicle£10,000 Current liabilities Current assets Overdraft£15,000Fertiliser in store£14,000 Merchant creditors£4,000Seed in store£4,500 NET WORTH£586,500 TOTAL LIABILITIES£668,500TOTAL ASSETS£668,500

 Tax must be paid on earnings and other incomes  You must file a tax return each year by; ◦ 31 st October by paper or ◦ 31 st January online  Your accountant can file the return for you or you can do it yourself  You must pay tax on profits  HMRC will not wait for payment!

 The current official HMRC tax year is from 6 th April 2014 to 5 th April 2015, although businesses can have different tax years.  Tax rates: ◦ Everyone can earn £10,000 per year (Personal Allowance) before tax is applied ◦ Pay 20% on remaining income up to a total of £41,865 ◦ Higher rate of 40% from £41,866 to £150,000 ◦ Additional rate 45% Over £150,000  If the business is a Partnership, each partner has a Personal Allowance

 Managing your business is crucial to success.  Good financial and physical records are needed to manage and plan properly.  Failing to plan is planning to fail!