By Robert Harris
BRUSHING up on machinery and labour management this spring could produce substantial savings, according to leading accountant Grant Thornton.
But there are no shortcuts – a thorough appraisal must be undertaken to assess the strengths and weaknesses of a business, says the companys Gary Markham.
Comparing own-farm figures with established benchmarks provides a good basis for comparison, he says.
Grant Thorntons latest figures collected from over 94,000 acres in the Eastern Counties show paid labour costs range from £25/acre on the best 25% of farms to £64/acre among the lowest quarter, he says.
“The target figure will depend upon the size of farm and the extent of the physical work. But in general, farmers should aim for about £30/acre.”
Total machinery costs also vary widely, from £74 to £110/acre. There is much room for improvement – Mr Markam reckons £78 is a reasonable figure. There are several areas to watch, he adds.
Depreciation is a key cost. Farmers should aim to spend no more than £40/acre. “The higher the level of investment, the higher the annual depreciation figure,” he warns.
“Keep fewer tractors and other implements, and extend the life of machines through regular servicing and maintenance.” However, such actions should be balanced against timeliness problems and potentially higher annual repair costs. Repairs should not exceed £17/acre, he suggests.
Fuel costs can also eat into profits. “Establishment of a cereal crop through a traditional plough-based system accounts for 40% or more of an arable businesss total machinery costs. Increasing minimal cultivations or using power harrow/drill combinations can help farms achieve the target figure of £10/acre”, says Mr Markham.
As a final check, combinable crop growers should aim to farm 500 acres a man using no more than 0.5hp/acre on medium to heavy soils, he advises. And the farm machinery value should not exceed £220/acre – though this ranged from £170 to £290/acre in the Grant Thornton figures.
Cut costs — join a machinery syndicate
This offers potential economies of scale by streamlining labour and machinery needs and spreading costs over a larger area. It makes it easier to justify new machinery, and may allow more flexibility during busy periods.
“However, absolute control of individual businesses may be lost, timeliness may suffer and more sophisticated management is required,” says Mr Markham.
Careful planning is needed. “Many machinery syndicates that fail do so because of disagreements between members. It is important to have the detailed workings agreed in writing beforehand to avoid any complications.”
A syndicate may be formed by simply retaining machinery within the existing businesses and jointly accounting for it. Others may prefer to form a partnership, funded through capital or loan accounts. Alternatively, a company can be formed, though this requires share capital to be invested, he advises.
An audit may also be required.
A list of machinery and labour needs should be drawn up, including where it is to be sourced, and apportioning responsibility for servicing, maintenance and housing.
Insurance, machinery replacement policy and existing HP and leasing agreements must also be considered.
Agreement should also be struck on whether labour and machinery will be charged on individual operations or stubble to stubble agreements, and on invoicing and payment time and procedure, says Mr Markham.