This book is a practical guide to all aspects of financial management in the smaller business. Although the prime focus is on owners and managers of farm businesses and farm diversifications, it is equally valuable for other types of rural business and organisation. It has proved popular on degree and diploma courses in Rural Resource Management, Countryside Management and Rural Estate Management, as well as those concerned with Agriculture. In this fourth edition, increased emphasis has been given to general accounting principles and techniques, especially those of management accounting, cost-volume-profit and break-even analysis and pricing. While maintaining and strengthening the farm business focus, the new edition also better accommodates the needs of non-agricultural enterprises, including service and manufacturing businesses and non-profit organisations such as Wildlife Trusts.

Martyn Warren is the author of Financial Management for Farmers and Rural Managers, 4th Edition, published by Wiley.

Preface to the Fourth Edition

ix

(2)

Acknowledgements

xi

Part 1: Basic Issues

1

(62)

1. Why Bother?

3

(6)

1.1 In the beginning

3

(3)

1.2 Building a framework

6

(3)

2. Cash Flow, Profit and Capital

9

(19)

2.1 Cash flow

9

(1)

2.2 Net profit

10

(4)

2.3 Profit statements

14

(2)

2.4 Capital

16

(2)

2.5 Capital statements

18

(2)

2.6 Depreciation

20

(8)

3. Interpretation of Financial Accounts

28

(14)

3.1 Adjusting for realism

28

(1)

3.2 Interpreting the profit and loss account

29

(4)

3.3 Interpreting the balance sheet

33

(9)

4. Management Accounts

42

(11)

4.1 Management versus financial accounts

42

(1)

4.2 Gross margin accounts

43

(1)

4.3 Full cost accounts

44

(1)

4.4 Allowing for cost behaviour

45

(5)

4.5 Pricing

50

(3)

5. Variations from the Norm

53

(10)

5.1 Farm management accounting

53

(3)

5.2 Partnerships and companies

56

(4)

5.3 Voluntary/non-profit organizations

60

(3)

Part 2: Basic Budgeting

63

(58)

6. A Profit Budget

65

(24)

6.1 Introduction

65

(1)

6.2 Compiling a profit budget

66

(10)

6.3 Home Farm profit budget

76

(13)

7. A Cash Flow Budget for the Whole Business

89

(17)

7.1 Basic principles

89

(1)

7.2 Value Added Tax and overdraft interest

90

(6)

7.3 Cash flow budgets in practice

96

(3)

7.4 Reconciling cash flow and profit

99

(7)

8. A Budgeted Balance Sheet

106

(5)

8.1 Compiling the budget

106

(1)

8.2 A budgeted balance sheet for Home Farm

107

(4)

9. Budgeting for Incremental Change

111

(10)

9.1 Relevant costs and benefits

111

(2)

9.2 Partial budgets

113

(8)

Part 3: Financial History

121

(52)

10. Recording Cash Flow

123

(21)

10.1 Designing a cash recording system

123

(2)

10.2 The cash analysis system

125

(6)

10.3 Petty cash

131

(5)

10.4 Statutory records

136

(8)

11. Recording Profit and Capital

144

(16)

11.1 Preparing a profit and loss account

144

(6)

11.2 Valuing stocks

150

(6)

11.3 Recording capital

156

(4)

12. The `Back-up' Records

160

(13)

12.1 Introduction

160

(1)

12.2 Transaction records

160

(2)

12.3 Physical records

162

(5)

12.4 Stock control

167

(1)

12.5 Background records

168

(1)

12.6 Organizing paperwork

168

(2)

12.7 Post-script

170

(3)

Part 4: Controlling the Business

173

(28)

13. Monitoring Cash Flow

175

(8)

13.1 Why monitor cash flow?

175

(1)

13.2 Comparison of actual and budgeted results

176

(2)

13.3 Interpreting the results

178

(2)

13.4 Annual cash flow monitoring

180

(3)

14. Monitoring Profit and Capital

183

(18)

14.1 The importance of monitoring profit

183

(2)

14.2 Comparison with previous years

185

(1)

14.3 Interfarm comparisons (1): conventional profit and loss account

186

(2)

14.4 Interfarm comparisons (2): profit and loss accounts in enterprise account form

188

(2)

14.5 Budgetary comparisons

190

(1)

14.6 Variance analysis

191

(3)

14.7 Profit monitoring for Home Farm

194

(3)

14.8 Monitoring capital

197

(4)

Part 5: More on Planning and Control

201

(70)

15. The Planning Process--A Wider View

203

(8)

15.1 Tactics and strategy

203

(1)

15.2 The mission

204

(1)

15.3 Setting aims and objectives

204

(3)

15.4 Assessing `internal' characteristics and external environment

207

(1)

15.5 Generating alternative plans

207

(1)

15.6 Selecting the optimal plan

208

(1)

15.7 Implementing and monitoring the selected plan

209

(1)

15.8 Involving other members of the organization

210

(1)

16. Planning for Livestock Enterprises

211

(13)

16.1 Introduction

211

(1)

16.2 Feeding livestock

211

(2)

16.3 Allocation of forage costs

213

(3)

16.4 Estimating potential production

216

(2)

16.5 Replacement of breeding livestock

218

(2)

16.6 Livestock with long production cycles

220

(4)

17. Labour and Machinery Planning in Farming

224

(15)

17.1 Introduction

224

(1)

17.2 Estimating level of use

224

(8)

17.3 Estimating labour and machinery costs

232

(2)

17.4 Investigating alternatives

234

(5)

18. Capital Planning

239

(18)

18.1 Introduction

239

(1)

18.2 Sources of capital

239

(3)

18.3 Estimating the cost of capital

242

(4)

18.4 Comparing alternative uses of capital (1): simple measures

246

(4)

18.5 Comparing alternative uses of capital (2): discounted cash flow techniques

250

(7)

19. Allowing for Risk and Uncertainty

257

(7)

19.1 Introduction

257

(1)

19.2 Allowing for risk and uncertainty in planning

258

(4)

19.3 Risk and investment appraisal

262

(2)

20. Allowing for Inflation

264

(7)

20.1 Introduction

264

(1)

20.2 Inflation and financial accounts

264

(1)

20.3 Inflation and management accounts

265

(2)

20.4 Inflation and planning

267

(1)

20.5 Inflation and investment appraisal

268

(3)

Appendix A. Personal Computers in Management

271

(17)

A.1 Introduction

271

(1)

A.2 Computers and farming

271

(2)

A.3 General business applications

273

(15)

Index

288

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Financial Management for Farmers and Rural Managers

9780632048717

0632048719

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