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2.  Recap on last week  Cash and Profit  Benchmarking 2

3.  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

4. 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

5. Layout of a Cash Flow Budget 5

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7. Overdraft not being repaid 7

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10.  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

11.  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. disinfectant  Increase in creditors ◦ have not been paid yet for product sold 11

12.  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

13.  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

14. CASHPROFIT ££ Sales+150,000Sales+150,000 Variable costs-75,000Variable costs-75,000 Business overheads-30,000Business overheads-30,000 Telephone bill-3,000Telephone bill (2/3rds to farm) -2,000 Machinery purchased (no loan) -50,000Depreciation (buildings & machinery) -15,000 Drawings & tax paid-20,000 CASH SURPLUS/ DEFICIT (after drawings & tax) -£28,000PROFIT£28,000 14

15.  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

16. “Helps farmers to assess their own business performance and compare their physical and financial results with other similar farms” 16

17.  Collect data  Analyse data  Compare your results  Identify reasons for variation  *Formulate action plan*  *Implement plan* 17

18.  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

19.  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, disinfectant, 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

20.  Group Exercise – Enterprise specific  4 or 5 key performance indicators for ◦ Physical performance ◦ Financial Performance  Include some figures about what good performance might be 20

21. Physical performance is a measure of the quantity and quality of what you produce on your farm. These will differ between enterprises, e.g.:  For Broilers  FCR  Mortality  Meat yield  Downgrades  21

22. 22 FCR- 2.0-2.1 up to 2.8 end of lay Eggs laid per bird per year Mortality Egg shell quality Downgrades Class B and C

23.  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.: For Broilers  Net profit after costs out  Pence per Kg  Margin over feed 23

24. 24 Net profit after costs out Pence per dozen eggs Feed cost

25.  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 25

26. 26

27. Simplified Financial Report 27

28. Gross Margin 28

29. Net Margin  No family labour included 29

30. Simplified Physical Report 30 Dairy Cows Physical performance This year 2013/2014 Average all 2013/2014 STOCK and LAND Cow Number120119 Stocking Rate (CE/ha)1.822.16 Total Farm Size103.0087.28 Land Used for Dairy Cows67.1355.47 Replacement Rate (%)4330 Culling Rate %2825 MILK Milk price (ppl sold * transport cost deducted) 31.3033.10 Annual Production/Cow (Litres)6,5187,334 Milk From Forage/Cow (Litres)6621,616 Milk From Forage/Hectare (Litres)1,2033,386 Milk Per Labour Unit (Litres)1,200,194692,183 ButterFat %4.164.04 Protein %3.153.24 Average SCC ('000/ml)206246 Average Bactoscan ('000/ml)5433 CONCENTRATE FEED Meal Fed Per Cow (Kg)2,6352,573 Meal Fed Per Litre (Kg)0.400.34 Margin over Concentrate (£/cow)1,3481,724 Margin over Concentrate (ppl)21.0023.61

31. 31 AverageGood Pence/dozen Total Output 59.35 60.85 Total Variable Costs42.15 39.35 Gross Margin 17.20 21.50 Total Overhead Costs 2.80 2.95 Net Margin 14.4018.55 Comparison of Performance

32.  Discuss the comparison report  Compare average and good figures  What are the positives?  What are the negatives?  What could be improved? 32

33. 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 33

34.  A process to help farmers assess their own business performance ◦ Physical performance ◦ Financial performance  Benchmarking will identify areas for improvement  No action, No benefit 34