Dont be a drip when it comes to water costs

26 February 1999




Dont be a drip when it comes to water costs

In the third of our series on

controlling overhead costs to

boost returns, Jessica Buss

finds out how to make

valuable savings on sundries

SUNDRIES may account for a small proportion of total income, but many farms could find a review of these costs saves thousands.

According to MDC finance project manager and Andersons partner Tony Evans, sundry costs account for only 1.4-1.9p/litre or 5-7% of income, so it is an area that is often neglected.

The three main costs in overhead sundries are water, insurance and office costs, areas that few consider seriously.

But savings are possible, and to find out the priorities for cost control, calculate costs in p/litre, which will allow comparison with other herds. Water costs are typically 0.3-0.4p/litre, insurance 0.2-0.3p/litre and office 0.7-1p/litre, according to Axient Farm Business Accounts. But some could achieve lower costs.

Water costs are a key area for saving. The Axient average costed farm of 122 cows spends £2460 on water, but farms with a borehole or using a spring can reduce costs much further (see panel), possibly to under £100 a year.

"Look for a way to lower water costs on farm by taking advantage of the natural assets of topography – the lie of the land – and climate," says Mr Evans.

Managing water leakages can also save on water bills. Livestock farms tend to have a lot of pipework and old pipes, so it is difficult to stop leaks. But monitoring water use by comparing it with previous years or taking meter readings can reveal leakages on farm, allowing them to be identified and controlled.

Collecting rain water rather than paying for mains water can also help: Many dairy units have large covered areas, but let rain water run off down the drain. "Collecting water off roofs and recycling for washing yards or possibly for cows to drink can lower bills."

Also ensure water from plate coolers is recycled. There is some evidence that cows will drink more of this warmed water in winter, producing potential yield benefits, says Mr Evans.

Farm insurance is another area where savings can be made relatively easily, he reckons. "At the moment the insurance market is very competitive and reductions of 40-50% in premiums are possible. But an average farm will only find savings of 20-30%.

"No matter who you buy insurance from now, look around." Mr Evans suggests obtaining three quotes, but be wary of brokers who charge commission.

When offered a saving of 30% it is tempting to go back to your original supplier who will often lower your quote. But remember that your original company has been charging you for your loyalty in the past, and taking too much money from you, possibly over a lengthy period.

Mr Evans also advises reviewing what you insure and examining a policy closely. Insurance policies are often based on values, but there are other ways to assess insurance needs such as by risk. For example, insurance for TB in an area where the risk is high may be costly, but when risks are low adding it to a policy may be worthwhile.

When you have older vehicles on the farm insuring them for third party cover, rather than fully comprehensive, may also lower insurance premiums, he adds.

Paying for insurance in monthly instalments can seem an attractive proposition, but beware that interest charges are often not competitive. Then, helping cashflow may be reducing profit, he warns.

The third cost saving area, office costs, can be split into three key sectors; professional advisers, telecommunications and subscriptions.

Accountants are a key professional adviser. Their costs cannot be eliminated on most farms because of complex self-assessment tax rules and profit averaging, but obtaining quotes will help minimise costs.

But for most businesses accountants fees for preparing tax accounts should only be about £900 a year, depending on the number of partners. But costs will depend on how much you do in the farm office. Accountants bills will be higher unless you produce a ledger from a computer package or a reconciled cashbook.

Also be prepared to pay extra for tax advice when needed, such as for inheritance tax or for capital gains.

Ensure you also get value for money from farm consultants. They can have a positive effect on a farm business, looking at it in both the short and long term. But often producers can do some of the tasks such as adding up figures and use advisers better as consultants to find and solve problems.

Subscriptions can be another area of waste. "Check bank statements for direct debits and standing orders and question whether they are adding value. When you subscribe to a society ask whether you have attended, then either start going or stop paying."

When it comes to phone bills remember rates have not increased, but phones are being used more. Ensure mobile phones are on the right tariff, that they are really needed and are mainly used for emergencies. Consider whether two-way radios would be cheaper.

Also ask whether you really need to be paying rental on a separate fax line, and whether there are more phone lines than are needed on the farm, he advises.

POSSIBLE SAVINGS

&#8226 £2500 on water bills.

&#8226 30% on insurance premiums.

&#8226 Accountants fees £900 a year.

Ways to lower water costs

Using a water supply found on the farm can save up to £2500 a year for a typical dairy farm.

Tony Evans says it is possible to cut water costs to only an extraction licence fee and a water quality test every six or 12 months.

Two possible options for providing water on the farm are a borehole or natural spring. One south-west producer invested £5000 in a borehole and pump and even though half the farms water already came from a natural spring the annual saving is £1200.

"Two capital and interest repayments mean a five-year payback, but that is a quicker return than buying quota, which typically has a seven to eight year payback," says Mr Evans.

Annual running costs for the borehole and pump are below £100 a year and it runs almost maintenance free.

Another south-west producer uses a natural spring and the farm contour, with a below ground water tank to deliver water to the farm. For an investment of £2000, average water costs for similar farms indicate a saving of £2500.

POSSIBLE SAVINGS

&#8226 £2500 on water bills.

&#8226 30% on insurance premiums.

&#8226 Accountants fees £900 a year.

Lower costs on farm

Using a water supply found on the farm can save up to £2500 a year for a typical dairy farm.

Tony Evans says it is possible to cut water costs to only an extraction licence fee and a water quality test every six or 12 months.

Two possible options for providing water on the farm are a borehole or natural spring. One south-west producer invested £5000 in a borehole and pump and even though half the farms water already came from a natural spring the annual saving is £1200.

"Two capital and interest repayments mean a five-year payback, but that is a quicker return than buying quota, which typically has a seven to eight year payback," says Mr Evans.

Annual running costs for the borehole and pump are below £100 a year and it runs almost maintenance free.

Another south-west producer uses a natural spring and the farm contour, with a below ground water tank to deliver water to the farm. For an investment of £2000, average water costs for similar farms indicate a saving of £2500.


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