Thursday, 3 January 2019
With plenty of uncertainty facing the agricultural sector in the New Year, farmers attending the recent Monitor Farm meeting in Duxford heard how keeping a firm grasp on business costs is the best way to prepare for the months ahead.
Attendees at the meeting in December heard from AHDB’s Knowledge Exchange Manager Philip Dolbear who presented an in-depth look at farm business accounts. Philip explained accounts reporting and showed how businesses are assessed when borrowing. The audience learnt how to assess their own farms to make comparisons and identify areas for improvement.
Philip’s previous experience working for a major bank meant he was well placed to present to farmers the factors a manager would consider when assessing a farm’s lending risk. At the centre of a bank manager’s assessment is the ‘PARSER’ rule, which stands for person (or picture), amount, repayment, security, expediency and reward. The acronym spells out the process a manager will go through to help decide whether or not to lend a business money.
Assessing the ability to make repayments is the most important when making a lending decision. Philip explained that a bank will only decide after it has made a thorough assessment of a farm’s business costs. The process also involves drafting a Farmers Statement that comprises management figures of current assets and liabilities to calculate net worth.
Philip invited attendees to take part in a workshop to learn how to calculate balance sheet ratios. The audience used the Farmer’s Statement to work out figures for a farm’s liabilities as a proportion of net worth and the capacity of the business to cover interest payments from profit. Later on Philip explored Proportional Analysis as another business tool and took the audience through a Cash Analysis or Funds Flow Statement from a set of accounts, highlighting the confusion commonly made between profit and cash. Finally he took attendees through a cost of production exercise, allowing farmers to make direct comparisons with other businesses and industry averages.
“Recent work by AHDB has shown that, whatever the outcome of the Brexit negotiations, the top 25% of farms are best placed to cope with the changes due to take place over the next few months.
By having an understanding of farm business accounts, farmers can ensure they’re better able to face any challenges that may arise”.
Attendees to the meeting in Duxford also heard from a number of other speakers including: Duxford Monitor Farmers Tom Mead and David Hurst, AHDB Knowledge Exchange Manager Teresa Meadows and Chris Scarboro from chartered accountants Hardcastle Burton on ways to compare and stay on top of business costs.