4 ways to improve your farming business: 3. Get a handle analysing (coding) with cost centres

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Farming is one of the staple industries of the UK economy. But it’s also a sector where revenues and profits can fluctuate greatly depending on market forces and economic conditions.

If you’re running your own farming business, it can be a challenge to keep on top of the dynamic nature of these fluctuating profit margins. But there are ways to get control of your key financial numbers and plan accordingly to keep the farm bringing in money and the business ticking over effectively.

And the cornerstone of getting control of your farm’s finances is coding, tracking and measuring the transactions being carried out within each of your enterprises

The benefits of tracking your finances with accounting software

In the past few years there’s been a seismic shift in the world of accounting. The traditional paper-based approach to accounting has gradually been replaced with easy-to-use accounting software that gives farming businesses greatly improved visibility of their core financial information.

A modern accounting package, like Xero online accounting, gives you a way to manage your bookkeeping, invoicing and accounts through a single all-in-one solution. But there’s another incredibly important reason for putting software at the heart of your financial systems: and that’s the ability to record all your farm’s transactional data in minute detail over time.

When you run your accounts from a software solution, you have the ability to code the transactions for every separate enterprise, or every separate product in your farm’s range. You can create costs centres for each enterprise and even go so far as to break down the cost and revenue items within each of these cost centres.

It’s like putting the cash and receipts for each area of the farm into their own unique pot – making it far easier for you to see where you’re making money and where you’re spending money.

Getting the information you need to make good business decisions

So, why is it important to have this visibility of your cost centres and coding? There are a number of reasons why coding your transactions is a positive move for your financial management and reporting.

  • When you look at your profit and loss reports, you have a far more detailed view of the revenues and spending for each particular element of the farm.
  • You improve your understanding of the farm’s financial health – you can immediately see where you’re losing money, or making money, and track it back to find the reason for the positive/negative impact.
  • You can track the performance of your costs centres over time and get a complete overview of how each element of the farm is performing.
  • You are better informed, have clearer data and can make business decisions about the future of the farm based on hard evidence and numbers. For example, if that dairy cost centre continues to make a loss, maybe now’s the time to sell it off and focus on your profitable beef herd.

By working in partnership with your accountant, you can regularly review all the cost centres within the farm and get the best possible overview of how each enterprise is performing in the market.

And when you have the right information, and an experienced farming specialist accountant on your team, you can be proactive about reducing any negative costs or refocusing the farm around the most profitable enterprises.

How forecasting keeps you one step ahead 

There’s another huge benefit of recording all this transactional data about your farm. And that’s the ability to take your actuals (your historical financial numbers) and to project this data forward in time to predict the future performance of the farm.

Extrapolating the profit and loss from each enterprise forward 6 months gives you an accurate idea of how much money each enterprise would be making – helping you see which path is the more stable option.

And if a key variable, like the profit margin on milk, changes, you can very easily plug this into your forecast to scenario-plan new options and outcomes.

With this ‘crystal ball’ giving you a view of the future, you’re one step ahead of other farms in your marketplace – and one step ahead of any big changes in the farming market.

Talk to us about getting control of your farm’s numbers

At Saint & Co, our Farming Services team specialise in helping you to get the financial information you need to manage your farm effectively.

We can personalise your accounts to include cost centres, and use these enterprise accounts to identify if the business is performing well or badly. And, crucially, we can help you make informed decisions about your next steps for the farm, based on this financial information.

You are the expert when it comes to running your farm – we know that. But we’re here to provide you with the financial numbers you need to make your business model more profitable, your tax strategy more effective and your long-term future more certain.

If you want to get in control of your farm’s finances, please do come and have a chat with us.

Contact your local Saint & Co office and arrange a meeting with one of our farming business specialists.

You can find out more about our farming services here.