DARD MANAGEMENT NOTES: Finance

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Measure to manage: Many farmers are so busy working that they don’t take time to stop and look at performance and finances.

Financial accounts which are used to calculate tax repayments are produced by all farmers and growers. In most cases an account is prepared which describes the profit or loss for a period of time. However historic financial accounts are of limited use in managing a business on a day to day basis. Other more useful options include the following.

Benchmarking – this evaluates the physical and financial performance of your business and compares the results with similar businesses. This helps identify areas where improvements could increase profitability. A data collector visits your farm to collect the information needed. CAFRE then produces a benchmark report, the details of which are discussed on farm with your local Development Adviser.

Monthly recording - this involves recording a small amount of information each month allowing more up to date analysis of both physical and financial performance. The monthly results enable identification of shortfalls, changes can then be implemented quickly and the resulting performance monitored.

Cash flow budget - this shows how money is earned and spent in a business. It also highlights when there is likely to be a cash deficit. This enables you to make contingency plans by talking to your bank before you reach your borrowing limit or before you are unable to pay bills. Talk to your bank if you think you may experience cash flow difficulties as the sooner they know the sooner something can be done. Banks don’t like surprises!

Essential versus non essential expenditure

Those of you experiencing falling output prices may be thinking about stopping all expenditure. It is better to critically examine expenditure and if you ‘spend a pound to get two’ still do it, even in times of poor prices. One area worth looking at is machinery investment. As the cost of machinery is one of the highest farm overheads carefully consider the purchase of any item of machinery.

Energy efficiency

Energy efficiency is a topical issue. With changes to Renewable Obligation Certificate (ROC) payments expected in October 2015, installing solar PV is still a sensible option on many units. In most cases the payback on these installations is relatively short, making them an attractive proposition.

Head of holding

If you are planning to make your son or daughter head of holding consider the implications this might have for student loans, family tax credits, etc. A larger single farm payment needs to compensate for other potential negative implications. It is worth speaking to your accountant about this.

Statements

Irrespective of business type or indeed prevailing market conditions two statements hold true, namely, ‘Get better before you get bigger’ and ‘Profit equals margin times volume’!