Keep tabs on daily costs with time-sheets
Complete cost breakdown is the only accurate method of calculating contractor profit. James de Havilland visits the Oxon business of Charles and Lyn Matthews, which also uses cost analysis as a management tool and a service for its clients
A TIME-SHEET for each employee was one of the first systems to be introduced when Lyn and Charles Matthews started their agricultural and industrial contracting business over six years ago at Wantage, Oxon.
Running from Monday to Sunday, with each job recorded in time slices of half an hour, the sheets take time and effort to complete accurately. But without them the costings which form the basis of all the Matthews contracting charges would be impossible.
The time-sheets are part of a wider costing and recording system designed to keep tabs on all contract and day-to-day costs. Once combined with machinery costs, they also form the backbone of contract charge calculations.
"What surprises me is that so few contractors work in this way. Many seem to work on the basis of what they can charge rather than basing their rates on their actual costs," says Lyn Matthews. "If you do not know your true costs, you will not be in a position to establish profitability.
"True cost information enables you to make a commercial decision whether or not you continue to offer a specific service at the market rate."
Mrs Matthews points out that any business has to be aware of its costs and only through thorough recording can charges be accurately recorded.
"The same applies to equipment. We look at the work that needs to be done, rather than buying equipment and then finding work for it. If anything we are under tractored, but that is a sign we are getting the best from our machinery."
On the labour side, the time-sheet data provides a guide to how well, or otherwise, the business is using its manpower. If an employee is earning less for the business it reflects upon how he is being managed.
"We use job codes to enable time-sheet data to be related to a contract.
"We then key the data into the computer-based Sage Job Costing System software to provide a record of the date, employee, his hours and costs related to the job performed."
Information is printed out each week and, for the farming operations, this information is then entered into the Farmade Multicrop programme which apportions arable work to an individual field.
This enables all the relevant costings to be kept together and easily updated. The breakdown of costs is not only a management tool but also provides the clients with accurate gross margin reports by field within each farm on a monthly basis.
It does, of course, take management time to correlate and input the relevant data into the computer and turn it into information that is of practical use. But the company needs this information not only to service management reports to the client but also to give an indication of the companys profitability.
"Time has to be invested in establishing the costs in running individual contracts. But unlike so many systems, which can identify a profit-and-loss historically, we know exactly how we stand financially on almost a daily basis," says Mrs Matthews.
"We also know when we tender for a new contract how much we must charge for the work to be viable. It is too late to back out half way through a contract when you find it is costing you money."
Charles Matthews is nonetheless realistic about the competitive nature of contracting. "In practice we have to compete with other contractors, and the prevailing rates for some jobs may be lower than we can charge," he says. "The bulk of the work we do is whole-farm contracting, and this helps to even out any variations in costs.
"But if we were general conracting, we would be unable to offer some services. The rates some contractors charge would not cover our costs by a substantial margin."
Matthews Agricultural and Industrial Contractors
Main business: Whole farm and general contracting. Fencing and industrial contracting
Tractors: JD 3650 (2), JD4350, JD4440, JCB Fastrac 185-65
Combines: Case IH Axial Flow 1680, JD2066 Hillmaster
Sprayer: Bateman Hi-Lo 28m
The Matthews: Cost recording is needed to set contracting charges.
A 170hp JCB Fastrac 185 is one of five mainline tractors run by Lyn and Charles Matthews. Their business is largely whole-farm contracting, but also includes some general contracting as well as industrial-type work.