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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
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Introduction What is Farm Business Management? Business Goals and Objectives Record Keeping VAT – Rules, Rates, Records Accounts – Cash Flow, Profit and Loss,
Balance Sheet Tax Returns and Payments
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Group Exercise
What is farm business management?
What has to be managed?
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The control of farm resources (inputs) to reach a goal (outputs)
Resources include: Land Labour Capital, e.g. machinery, buildings,
livestock, feed, medicines etc.
Decision making
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Farmer = Manager
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Workers
Management
M.D.
Typical Organisational Chart
Large businesses Farmer?
M.D. Builder
WorkerPlumber
Mechanic Vet
Stockman
Manager
Book keeper
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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
GoalsGoals
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Goals are broad statements that show where you want to be after some period of time.
Objectives are the specific steps that must be taken in order to reach goals.
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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?
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The Importance of The Importance of PlanningPlanning
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Farm Records
Why keep records? What records do I need to keep? What records are legally required? How long must they be kept?
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It’s the Law
For VAT and Tax forms (HMRC)
To measuring performance
For making decisions;◦ Details for management decisions: feeding,
breeding, culling, selection, purchases, expansion, etc.
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There is a crossover between the Legal requirements, FQAS, NAP, Cross Compliance and other schemes.Herd Records - Law
- Births,- Deaths,- Movements,- Imports / Exports
Fertiliser used – Law, NAP RegulationsLivestock feed supplies – Law, FSA, FQASVeterinary Medicine records - LawChemical / Pesticide records - Law
Farm Records - PhysicalFarm Records - Physical
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Documents used to complete a tax return,
Bank statements and cash transactionsLoan agreementsCredit card receipts Sales and purchase invoicesInvestmentsPrivate expenses taken from account – Personal DrawingsVAT accounts, import or export documents
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Personnel File Wages & National Insurance contributions etc.
Retention Period for Financial Records – 6 years after the current year
Contract & employee recordsRetention 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 - OtherFarm Records - Other
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Group ExerciseWhat information needs to be recorded before you can assess the performance of your own farm?
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Performance records/stock Performance records/stock recordsrecords
Information to record:
• Meal purchased/fed• Service dates/ Calving dates• Liveweights• Carcase weights• Medicine purchase/usage• Field and crop records• …
Used for Benchmarking
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Calves/cow/year Fertility/calving interval Lambs sold/ewe Kg liveweight sold/ha Average slaughter weights / carcase
grades Daily liveweight gains (DLWG) Average meal fed/animal sold or per
cow/ewe Stocking rate cows/ewes per ha Etc……
All this information will help to create benchmarking reports for the enterprise
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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 (HMRC)
www.hmrc.gov.uk/vat/
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Must submit online You usually submit a VAT Return to HMRC every 3
months. The VAT Return records things for the accounting
period like: ◦ your total sales and purchases◦ the amount of VAT you owe ◦ the amount of VAT you can reclaim◦ what your VAT refund from HMRC is
You must submit a VAT Return even if you have no VAT to pay or reclaim.
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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 system5.Outside the scope of VAT
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Vat Categories Summarised
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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
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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
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=
Sales+
Subsidies (including SFP)
+Sundry income
TOTAL INCOM
E
COST OF
SALES
Opening valuation(livestock, crops, fodder,
feedstuffs andgoods in store)
+Purchases
–Closing valuation
-
GROSS PROFIT
OVERHEADS OR FIXED COSTS
NET PROFIT
-
=
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Sales Milk Sales 200,000Livestock Sales 20,000
Single Farm Payment 15,000TOTAL INCOME 235,000Cost of Sales Opening stock valuation 150,000
Purchased feed 67,500Dairy variable costs 10,000Forage costs 20,000
97,500Closing stock valuation 150,000
97,500GROSS PROFIT 137,500Fixed Costs Power and machinery 32,000
Sundry overheads 10,000Depreciation 19,000Paid labour 12,000Conacre 8,000Bank charges / interest 6,000
87,000NET PROFIT 50,500
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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.
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Value of Assets
NET WORTH
Value of Liabilities
-
=
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LIABILITIESASSETS
Long/medium term
liabilitiesFixed assets
Mortgage £55,00060 ha land @ £10,000
£600,000
Hire purchase £8,000Machinery and equipment
£40,000
Breeding livestock £30,000
Current
liabilities Current assets
Overdraft £15,000 Store cattle £20,000Merchant creditors £4,000 Feed in store £2,500NET WORTH £610,500 TOTAL LIABILITIES £692,500 TOTAL ASSETS £692,500
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Tax must be paid on earnings and other incomes
You must file a tax return by 31st January each year
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!
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The current official HMRC tax year is from 6th April 2014 to 5th 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
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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!