Farm business and financial planning
Business plans, account management, benchmarking and planning for farming businesses.
Introduction
If you run a farm, there is a wide range of advice available to you, including how to write a business plan, run your accounts, benchmark your business and plan your future activity.
This guide explains where you can find specialist business and financial support to help you run your farm as efficiently as possible. There is also information on business and financial planning tools available to you, as well as information on the standards and schemes that you must comply with.
Write a farm business plan
A good business plan gives credibility to your farm, and to your skills as a farm owner or manager. Even if you do not intend to make any changes to your farm, you should still write a business plan. A good farm business plan can highlight weaknesses in how you plan and run your farm, which can provide helpful insight for later improvements.
Before writing a business plan, it is advisable to thoroughly research the sectors that you are currently working in - or plan to work in - including any future economic prospects for these sectors. You should also familiarise yourself with the relevant regulations for your business.
What your plan should contain
When writing your business plan, consider including:
- your short-term and long-term aims
- a timescale for achieving your aims
- who will be involved
- how you will manage the money
It may also describe your farm’s unique characteristics, for example, its:
- location
- soil type
- management eg whether it is family run
Business plan structure
Most business plans contain:
- financial forecasts
- your marketing and sales strategy
- information about your management team and staff
- an operations plan
Financial forecasts should show what you predict will happen to your business financially when you implement your new plan. For example, you should think about:
- how much external funding you may need
- what you can offer as security against loans - if needed
- how much income you are expecting
- what your expected profits and losses will be
Your financial forecasts should include a cashflow forecast, and projected profit and loss account.
The operations plan is a description of the farm itself, and how it is run. It can include details about:
- the land, buildings and facilities
- equipment, vehicles and machinery used on the farm
- materials and supplies
- what is produced and when
- plans for new facilities
- any environmental assessment plans, eg for soil conservation or to improve water quality
- relevant regulations and licences
It may also be useful to prepare an executive summary - a synopsis of key points from your entire plan and a short description of your business opportunity - for presenting to third parties such as your bank, potential investors or suppliers.
Adapt an existing farm business plan
Changing circumstances may prompt you to adapt your existing farm business plan. If you are looking for a new source of funding - eg through the Rural Development Programme for England - you may need to consider adapting the way your farm is run.
Even if your current farm business plan is successful, you should always consider reviewing it for possible growth opportunities and improvements to farming operations.
For more information on growth opportunities and changing farming operations, see the guides on ideas and funding for diversification and ideas and funding for diversification.
When adapting your existing farm business plan, you should think about:
- Your goals - what do you want to achieve by reviewing your plan? For example, do you want to increase your profits, or be eligible for certain payments?
- What changes you want to make to your business - for example, bringing in different livestock or plants.
- How to best make these changes to your farm.
- How you will carry out this change and at what cost?
- Any financial implications of this change - and how long will it take you to make a profit?
- How long the changes will take you to implement.
- Potential risks - financial or otherwise - to your business.
Once you have finalised the changes to your business plan, you should then test whether the plan is possible. You can then work out whether you have enough resources, you can meet the demands, and whether your new plan is realistic.
Financial figures: assess the viability of your farm business
One of the major roles of the Defra is to help the farming industry operate as efficiently as possible.
Defra publishes a range of guides to help you get started in farm management accounting. The first of these covers how to use your farm accounts to assess your financial situation. This booklet is an important first step in helping you to understand what your accounts tell you about your farm’s viability, and how to make better use of that information.
In order to be viable, your farm needs to generate enough income to cover:
- money you draw for your own use
- tax
- re-investment
- repayments on borrowing
Defra’s booklet shows you how to use your profit-and-loss account and balance sheets to assess the viability of your business. It guides you through the principles of basic accounting, explaining terms and giving examples of how to enter figures into your accounts. Knowing how to interpret these figures is key to managing, budgeting and planning the future of your farm business.
To make the best use of the booklet, it will help to have a copy of your latest farm accounts.
Financial figures in whole farm planning
Once you have assessed your farming business and its success, you may consider making changes to the way your farm operates. Your decisions - and those of potential lenders - will be based on the financial figures you have drawn up for your business.
Defra has published a booklet on mapping out the future of your farm, which provides guidance and information on using financial figures in your overall farm business plan. This booklet will help you to:
- make partial and major changes to your whole farm business
- make changes to your business planning documents yourself
- reflect risk, feasibility, viability and future performance in your financial figures in order to determine whether changes will help to make your business more profitable
Plan a partial change to your current system
You can also use your financial figures to work out whether partial changes to your farm system will enhance your profitability. There are several steps to this process:
- decide on goals - eg increasing production or profitability
- make a list of the changes you could make to achieve these goals
- outline the strengths, weaknesses, opportunities and threats in your plan
- make a complete list of the resources you will need to achieve your goals
- use a profit and loss table to calculate the financial gain versus the cost of these changes
- determine the effect your changes will have on cash flow quarter by quarter
- evaluate the risks involved in your project and whether you can reduce them
You should try to write down as much information as possible as this will help you to develop your plan and share your ideas with others. At each stage, take time to ensure you have included every possibility.
Convert your farm’s financial accounts into management accounts
Financial figures are vital to running any farm, but they can be much more useful to you if you convert them into management accounts.
The third booklet in the Management Accounting for Farmers series published by Defra is a step-by-step guide to converting your figures into management accounts. Working through the guide will help you to understand your business more clearly and will equip you to deal more effectively with your bank, accountant and farming business consultant.
This practical guide looks at:
- the terms used in financial and management accounting
- how profit and loss accounts are structured in management accounting
- using the profit-and-loss accounts and balance sheet as management tools
- why stock appreciation and herd depreciation are important for livestock farmers
Farm business benchmarking
Using benchmarking tools will allow you to compare your results with those of other similar farm businesses. This helps you to find out how your business is performing compared with farms of a similar size and type, and in turn will help you identify areas for improvement.
Farm benchmarking is an online tool from Defra. You can use it to compare your farm with other farms in Defra’s Farm Business Survey and with farms in similar surveys in other European Union countries. Farm business benchmarking lets you compare your:
- financial data with farms of a similar type and size
- performance in terms of revenue, cost and profit
- business results with average or above-average farms
The tool is based on Defra’s annual Farm Business Survey. This survey gathers information from farmers and growers each year about various aspects of their business.
The tool will also help you decide if there are areas of your business that could be improved - eg by reducing costs or increasing output.
You will need up-to-date financial accounts in order to use the tool. For more information on farming accounts, see the section on using financial figures to assess the viability of your farm business.
Download Defra’s ‘Farm Business Benchmarking Online: Management Accounting for Farmers’ (PDF, 114K).
Meat producers benchmarking
The Red Meat Industry Forum (RMIF) has set up local Farm Business Clubs, which give access to a specialist benchmarking service for red meat producers.
Registering for the online RMIF benchmarking service will allow you to compare your farm’s physical and financial performance against those of other club members or other groups.
Milkbench+
Milkbench+ is an independent service to help milk producers calculate their net margins on milk, and work out how well their business is performing compared to other producers.
Find out about the Milkbench benchmarking service on the Milkbench website (registration required).
Cross compliance requirements for farming businesses
Cross compliance requires you to observe two main sets of regulatory standards in your farming business:
- Statutory Management Requirements (SMRs) for environmental, public, plant and animal health, and animal welfare
- requirements to keep your land in good agricultural and environmental condition - with specific reference to soils and maintaining a variety of habitat and landscape features
To find out more about cross compliance, see the guide on cross compliance: the basics.
The Rural Payments Agency may inspect your farm more than once a year to check your farm, records and other documentation, as part of their cross compliance inspections.
You must comply with cross compliance requirements to qualify for:
- project funding under the Rural Development Programme in England
- Single Payment Scheme (SPS) funding
- any other direct farm payments, such as Environmental Stewardship payments from Natural England
Cross compliance and business planning
You must ensure that you consider cross compliance requirements when creating a farming business plan, including:
- how your SPS payment could affect your profits, losses and income
- whether meeting SMRs would affect the financial aspects of your plan - for example, you may need to budget for the identification or registration of livestock
- how your business plan would be affected if you don’t meet cross compliance requirements and therefore do not receive your Common Agricultural Policy payments
All cross compliance payments are subject to meeting specific criteria. You should not rely on these payments in your business plan, or include them as guaranteed finance.
The Farm Advisory System advises farmers about cross compliance. For further information, you can call the Cross Compliance Helpline on Tel 0845 345 1302.
Organisations dealing with farm financial planning
There are several organisations that can offer support and advice to farmers about farm financial planning.
You can also use this site to find out about regulations, licences, standards and trade bodies relevant to specific business sectors, for example:
- arable
- cattle
- sheep and goats
- pigs
- poultry
- fish farming
- beekeeping
- other animal farming, eg game or pets
- farming support services
Find out how to comply with all the regulations and licences that apply to you in the section on your business sector.
The Department of Environment, Food and Rural Affairs (Defra) administers European support policies that provide around £3 billion to UK agriculture. It also oversees a number of agencies that work with arable farmers, imports and exports of crops and implement pest and disease controls. You can call the Defra Helpline on Tel 08459 33 55 77.
The Carbon Trust provides interest-free loans of between £3,000 and £20,000, for farmers in England to upgrade to more energy-efficient equipment. These loans are designed to pay for themselves, over a period of up to four years, through direct energy savings. You can find out about interest-free loans on the Carbon Trust website.
The Rural Development Programme for England 2007-2013 (RDPE) is jointly funded by the Government and the EU. Under this scheme the government will allocate a total of £3.3 billion to agri-environment and other land management schemes. The introduction of the RDPE has changed the way payments are made under the Environmental Stewardship and Energy Crops schemes.
In England, the Farm Advisory System advises farmers about cross compliance. For further information, call the Cross Compliance Helpline on Tel 0845 345 1302. Alternatively, find information on cross compliance requirement on the Cross Compliance website.
The National Farmers’ Union (NFU) represents the farmers and growers of England and Wales. It aims to promote successful and socially responsible agriculture and horticulture, while ensuring the long-term viability of rural communities.
You can find out about the work of the NFU on the NFU website.
Natural England is an agency of Defra. It administers a programme of financial incentives for farmers and land managers, aimed at protecting and enhancing the natural environment. These include:
- the Environmental Stewardship scheme
- cross compliance requirements
- land management
- wildlife management and licensing
- Countryside and Rights of Way Act
Defra also makes grant funding available to certain woodland projects under the English Woodland Grant Scheme (EWGS). These are administered on behalf of Defra by the Forestry Commission.
Find out about the EWGS on the Forestry Commission website.
Further information
NFU Callfirst Helpline
0870 845 8458
RMIF Helpline
01908 844 710
Defra Helpline
08459 33 55 77
RPA Helpline
0845 603 7777
Rural Business Unit Helpline
01223 337 166
Cross Compliance Helpline
0845 345 1302
Download Defra’s farming systems advice from the Agricultural Document Library website (PDF, 326K)
NFU business guides on the NFU website (registration required)
Cash accounting online courses for small businesses on the learndirect business website
Download Defra’s farm business benchmarking guide from the ADLib website (PDF, 114K)
Milkbench+ benchmarking service information on the Milkbench+ website (registration required)
Cross compliance guidance on the Cross Compliance website
Interest-free loan information on the Carbon Trust website
Cross compliance requirements and information on the Cross Compliance website
NFU information and services on the NFU website
EWGS information on the Forestry Commission website
EU direct payments information for farmers on the European Commission website
Last updated 13 June 2013 + show all updates
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Fixing references to specialist guides
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