Accountomatic Automated Accounting

FARM BUSINESS PLANS AND BUDGETS

Helping you make the most of your farming business...

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Getting the most from your farm business plan and budget...

 You really cannot hope to make the most of your farming business without a business plan. An essential part of any business plan is the budget. It may go by some other name, such as business projections, cash flow forecast or whatever, but in essence they are one and the same thing – the budget or financial road map for the business.

The farm business plan sets out the objectives or goals and how those objectives are to be achieved. It identifies the resources required to reach the goals, those available, those to be acquired and the cost of or costs attaching to those resources and maintaining them

The farm budget is then the financial road map, which projects the costs to be applied to the plan and the income that should flow from it. It is the budget that demonstrates the funding required to achieve the goals, so that you can make arrangements well in advance and not be stopped in your tracks due to shortage of funds. You can build the funding and its cost into the budget to get a true picture of the probable results.

Yes?

The budget would, in fact, be a key requirement when raising external finance (probably from a bank) and for managing and maintaining the funding.

So, you know that a budget is an essential part of the farm business plan, but what practical use does it have?

Please don’t, like the majority, put it in the drawer and forget about it for a year, then take it out, dust it off, update it and send it to the bank again, so that the facility is renewed.

By doing that, you’d be by failing to take advantage of a hugely valuable tool for running your farming business and making the very most of it. You put work into producing it, or pay for someone to do it for you, so why not make the most of it, by monitoring the variances between it and the actual performance of the business?

The budget that you produce, particularly if for the bank or other source of finance will, more likely than not, show the very best attainable results of your farming business. (As an aside: attainable is the key word there, because if the results are not actually attainable the funding application is tantamount to fraud!). If you do not monitor results against the budget, you're missing out on a massive amount of information that could help you to run your farming business much more efficiently and profitably.

By comparing the budget to the actual results and analysing the variances and reasons for them, you obtain hugely valuable information to help you make your farming business as profitable as you possibly can.

There are so many factors that have an impact upon the profitability of farming businesses, whether dairy, livestock, arable, fruit or vegetable growing, intensive or extensive, that I cannot hope to cover all of them here. Many of those factors are within your control but there are many that you can do very little about. (As an example of the latter category, at the time of producing this report pig prices have fallen, week on week, for the last three weeks. There’s no way that this could have been predicted, the reason being that abattoirs are seriously under-staffed so just cannot process them! The reasons are immaterial – but could you have predicted that?)

So, what , what can variances tell you?

The first step is to identify the variance, then drill down to identify the reason for it. In the most basic terms, variances between farming budgets and results fall into two categories only: quantity and price, or a combination of the two. I really don’t want to get bogged down with illustrations, but will look briefly at two scenarios.

The first is a dairy herd where milk sales are below forecast (or budget).

Part of this is due to reduced farm gate prices, but that doesn’t explain the full shortfall, which is, in fact can only be, due to quantity. But why is production below budget? In this case there was a knock on effect due to the reduced farm gate price. Bought in concentrate feed maintained its price and the decision was taken to feed less, with the effect that there was a fall in milk production. The key is to balance the apparent positive variance in feed costs, a quantity variance due to feeding less, against the negative sales quantity variance and to adjust to ensure that the negative effect on the overall results is minimised.

The second is a cereal crop. Sales are increased compared to budget, although yields are very close to budget – a positive price variance. There is a negative variance in the use of fungicides, due to both price and quantity.

The whole thing is down to an outbreak of some disease or other in cereals. It doesn’t matter what. The solution was to spray against it, hence the increase in costs, due to the increased application and, due to increased demand for the particular fungicide, the increase in price. Because of the application of the fungicide, yield was maintained. But, because not all farming businesses applied the additional fungicide, nationally yields were lower than expected, therefore the increase in farm gate prices and the positive sales variance.

These examples illustrate well how difficult yet critical to results that management decisions taken in farming businesses can be, particularly when the effect of those decisions is often full of uncertainty. Add to that factors such as world markets and political influences and, if you do not have a clearly defined farm business plan and budget, you really cannot hope to make the most of your farming business!

Accountomatic Automated Accounting for Farming Businesses

What do our standard services include?

Bookkeeping.
Value added tax (VAT) returns.
Sole trader accounts.
Partnership accounts - limited liability partnerships (LLPs) and 1890 Partnership Act partnerships - for LLPs both full statutory accounts and abridged or filleted accounts for filing at Companies House.
Limited company accounts - full statutory accounts for the members and HMRC and abridged or filleted accounts for filing at Companies House.
Self assessment tax returns for individuals.
Self assessment tax returns for partnerships.
Corporation tax returns.

Bonus services

Companies House submissions - accounts and confirmation statement.
Payroll processing and administration.
Bespoke management reports.

Additional services

Business structure and incorporation.
Tax planning - value added tax, income tax, corporation tax, capital gains tax, inheritance tax, stamp duty land tax.
Business plans.
Budget setting and monitoring.
Investment and decision taking.
Diversification.
Funding proposals.
Capital gains tax computations and returns.
Provision of registered office and related services.
Business succession.
Estate planning and trusts.
Accountomatic Automated Accounting for Farming Businesses

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