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With the agricultural sector facing several challenges over the next few years, it would seem a relevant point in time to take stock.

The challenges for most businesses may vary as circumstances, locations and soil types vary, in some cases significantly. That said, re-assessing business objectives should periodically be done. The questions you might ask include:-
  • Am I sufficiently profitable?
  • Have I addressed succession?
  • Is any debt I have really affordable?
  • Is my mix of enterprises healthy?
  • Should I investigate diversification opportunities further?
  • Am I a good farmer and/or businessman?
  • Do I make a profit from my rented land?
There will, of course, be many more questions specific to your own business. Without profitability decision making becomes more difficult so this would seem a good place to start. Whilst business accounts are useful, they are often 1-2 years out of date and therefore should be supplemented with farm office computerised information and an annual farm budget, not just a cashflow.

Based largely on actual historic data, the budget will allow for greater analysis of profitability and benchmarking of both enterprise output and costs, miscellaneous income and private and business costs. The drive towards making tax digital should provide an opportunity for individual businesses who have not already, to update their on or off farm accounting and this should be using a software package appropriate to allow for easy business analysis and not just for preparation of the farm accounts and submission of VAT returns.

With regard to benchmarking, Brown & Co are currently undertaking benchmarking work on behalf of the AHDB, the results of which will be available at harvest, and amongst other things will help those farmers reassess
aspects of their business and could lead to improved understanding of accounts, better management of machinery and associated costs, setting and understanding targets and how to manage and reduce costs.
Whilst generic benchmarking is difficult and should be done with caution, AHDB analysis indicates the following target spend.

Proportional Accounts Analysis
  Target %
Turnover 100
Variable costs 30
Gross margin 70
Labour costs 17
Power costs 17
Administration 3
Property costs 3
Total fixed costs 40
Pre-rent & Finance Surplus 30
Rent & Finance 15
Profit 15

With likely changes to farm and rural subsidies, understanding financial aspects of any business will only become more important and should be immediately addressed. Whilst farm support has been guaranteed for the next 2 years that provides a sensible period of reflection.

For more information contact your local Brown & Co office or the author Paul White – Brown & Co 01476 591991 or