1. recap on last week cash and profit benchmarking assessment 2
TRANSCRIPT
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Recap on last week
Cash and Profit
Benchmarking
Assessment
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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?
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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
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Jan Feb Mar Apr May Jun Total
Cash sales 200 350 871 6,391 5,800 2,786 16,39820,000 20,000
Total receipts 20,200 350 871 6,391 5,800 2,786 36,398Variable Costs
1,193 555 1,535 767 4,0500
Total variable costs 1,193 555 1,535 767 0 0 4,050Other Costs
600 600 600 600 600 1,000 4,000100 100 200
50 50 10050 300 50 50 150 600
Loan Repayments 263.5 263.5 263.5 263.5 263.5 263.5 1,581Bank interest 160.6 160.6 160.6 160.6 160.6 160.6 964Accountant & Ins 300 300 600Total fixed costs 1,024 1,174 1,674 1,474 1,074 1,624 8,045Capital expenditure
15,000 15,0005,000 5,000
Total cap expend 20,000 0 0 0 0 0 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
Loans
MaterialsWages
DrawingsHire of tractorRepairsUtilities
BuildingsEquipment
CASH IN
Layout of a Cash Flow Layout of a Cash Flow BudgetBudget
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Overdraft not being repaid
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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
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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
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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
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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
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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
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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
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“Helps farmers to assess their own business performance and
compare their physical and financial results
with other similar farms”
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Collect data
Analyse data
Compare your results
Identify reasons for variation
*Formulate action plan*
*Implement plan*
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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
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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)
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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
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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)
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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
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1 year ago Average all
£/ Cow £/ Cow £/ Ha £/ Cow
1,600 2,040 3,672 31.38 2,300100 130 233 1.99 142-350 -380 -684 -5.85 -212
1,350 1,790 3,221 27.53 2,2290 0.00
160 170 306 2.62 151600 685 1,233 10.54 68320 60 108 0.92 415 3 5 0.04 2950 50 89 0.76 84
835 967 1,741 14.88 988515 822 1,480 12.65 1,241
0 0.00225 220 396 3.38 8536 55 99 0.85 5280 70 126 1.08 4425 25 44 0.38 7640 100 180 1.54 9340 10 19 0.16 3220 25 45 0.38 3115 15 27 0.23 1112 30 54 0.46 250 5 9 0.08 10
493 555 1,000 8.54 4591,328 1,523 2,741 23.43 1,447
22 267 480 4.10 782Paid Labour 60 0 0 0.00 33Conacre 10 6 10 0.09 48Finance 0 0 0 0.00 16
563 561 1,010 8.63 556 1,398 1,528 2,751 23.51 1,544-48 261 470 4.02 685
*excl. Family labour
561
Total Overhead Costs* 615Total Costs* 1,331Net Profit* 474
Total common overhead costs
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Total common costs
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Net Margin
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5281,244
Water & Rates 18Business admin costs 25Miscellaneous Costs 10
Building depreciation 40Property repairs 40Electricity 25
Machinery running costs 35Fuel costs 65Contractor charges 20
Gross Margin 1,089Overhead Costs
Machinery depreciation 250
Breeding Costs 6Sundry Costs 25Total Variable Costs 716
Forage Costs 110Concentrates 515Vet/Medicine 60
Less Replacements -225Total Output 1,805
Variable Costs
OutputMilk Output 1,890Calves 140
Dairy cows report 2013/2014 2 years ago This year 2013/ 2014
Accounts £/ Cow PPL
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This year 2013/ 2014
Average all
£/ Cow £/ Cow
2,040 2,300130 142-380 -212
1,790 2,229
170 151685 68360 413 2950 84
967 988822 1,241
320 178150 17210 3240 4230 250 336 480 165 10
561 556261 685
Miscellaneous Costs
ConacreFinance
Net MarginTotal Overhead Costs
Machinery and building depreciationMachinery running costs, contractor
Electricity, Water RatesProperty repairs
Paid LabourBusiness admin costs
Vet/MedicineBreeding Costs
Forage CostsConcentrates
Gross MarginOverhead Costs
Sundry CostsTotal Variable Costs
Dairy cows report 2013/2014
AccountsOutput
Milk Output
Total OutputVariable Costs
CalvesLess Replacements
Simplified Financial ReportSimplified Financial Report
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This year 2013/ 2014
Average all
£/ Cow £/ Cow
2,040 2,300130 142-380 -212
1,790 2,229
170 151685 68360 413 2950 84
967 988822 1,241
Vet/MedicineBreeding Costs
Forage CostsConcentrates
Gross Margin
Sundry CostsTotal Variable Costs
Dairy cows report 2013/2014
AccountsOutput
Milk Output
Total OutputVariable Costs
CalvesLess Replacements
Gross MarginGross Margin
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320 178150 17210 3240 4230 250 336 480 165 10
561 556261 685
Miscellaneous Costs
ConacreFinance
Net MarginTotal Overhead Costs
Machinery and building depreciationMachinery running costs, contractor
Electricity, Water RatesProperty repairs
Paid LabourBusiness admin costs
Overhead Costs
Net MarginNet Margin
No family labour included
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Simplified Physical ReportSimplified Physical Report
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Dairy Cows Physical performance
This year 2013/2014
Average all 2013/2014
STOCK and LAND
Cow Number 120 119
Stocking Rate (CE/ha) 1.82 2.16
Total Farm Size 103.00 87.28
Land Used for Dairy Cows 67.13 55.47
Replacement Rate (%) 43 30
Culling Rate % 28 25MILK
Milk price (ppl sold * transport cost deducted)
31.30 33.10
Annual Production/Cow (Litres) 6,518 7,334
Milk From Forage/Cow (Litres) 662 1,616
Milk From Forage/Hectare (Litres) 1,203 3,386
Milk Per Labour Unit (Litres) 1,200,194 692,183
ButterFat % 4.16 4.04
Protein % 3.15 3.24
Average SCC ('000/ml) 206 246
Average Bactoscan ('000/ml) 54 33CONCENTRATE FEED
Meal Fed Per Cow (Kg) 2,635 2,573
Meal Fed Per Litre (Kg) 0.40 0.34
Margin over Concentrate (£/cow) 1,348 1,724
Margin over Concentrate (ppl) 21.00 23.61
Discuss the benchmark report
Compare to average figures
What are the positives?
What are the negatives?
What could be improved?
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• 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
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A process to help farmers assess their own business performance◦ Physical performance
◦ Financial performance
Benchmarking will identify areas for improvement No action, No benefit
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