Opinion: It’s time to get familiar with the accounts

If you are a person who responds positively to deadlines, or rather, who does not respond positively unless there is a deadline, you are probably gearing up to submitting your tax return at the end of the month. 

This, in turn, means you probably only recently finished the accounts, which may well relate to some period at least 18 months ago. It feels like ancient history. 

Calculating numbers for income tax return with glasses pen and calculator

© Monkey Business Images/REX/Shutterstock

So you may not dwell too much on the contents. After all, the balance sheet usually bears little relation to reality and the profit-and-loss account relates to a different time, with different trading and possibly different climatic conditions.

Doing the accounts is probably one of the least loved and least glamorous parts of running our farming business. Given that other activities include shovelling manure, this says a lot.

The pages of the farming press, not least Farmers Weekly itself, tend to feature rather go-ahead types who have just been flicking through their gross margin analysis and developing new tweaks to improve their returns. 

But I seem to have met a lot of people in livestock farming who don’t operate at that level of detail.

Indeed, some appear to have only a vague feel for the profitability of their current enterprises. 

Elizabeth Elder and her husband Jake run sheep and cattle in Northumberland.

There are various reasons for this lack of up-to-date financial information.

Some people find they can operate perfectly well by paying close attention to cash management and monitoring a few key indicators such as lamb or cattle prices or feed costs.  

Over the years, these have provided a reasonably good measure of how things are going and truthfully, even if detailed financial information was available, it would not make any difference. 

There is often not much choice about the type of enterprise that can be undertaken and subsidies and environmental schemes have provided dependable and foreseeable income streams, even if the timing of receipts has not always been reliable.

These have underpinned everything else and insulated businesses from other trading risks.

Additionally, sometimes the senior partner, managing director or boss only shares financial information on a need-to-know basis and may feel that nobody else needs to know, even if they are also a partner and/or doing 90% of the work.  

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This attitude is not unique to agriculture. I used to work in a professional services firm that distributed monthly “management accounts”  to senior staff in each department. 

It wasn’t clear why they bothered because these “accounts” only included one real figure – billings, a figure we could deduce anyway, because we raised the bills. 

Every other figure was notional, so they gave no real idea of the true profitability of the business. 

The obvious conclusion was that this was deliberately done to prevent staff from asking for a pay increase.  

However, on a day-to-day basis it didn’t matter. The lack of business information did not impinge on our ability to do our jobs.  We weren’t making long-term strategic decisions for the organisation and, as long as we were busy and remunerated, it was fine.

Yet, given the current uncertainty over future market prospects and ongoing support levels beyond 2020, people in livestock farming do need to start thinking strategically about the long term. 

So, now would be a good time to get reacquainted with or perhaps even introduced to the business accounts. 

Some people will look to expand and some will end up planning to leave. However, whatever happens, it will help if decisions are based on the real financial position of the business rather than gut feel or wishful thinking. 

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