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Annex 6

ICT APPLICATIONS FOR FISH

ENTERPRISE MANAGEMENT

Advance Fisherfolks Management Training Course (AFTC)

FIVE – DAY TRAINING MANUAL

REGINALD OLIVER SEVERIN

NOVEMBER 2012

2 Copyright © ROSSEAGR SERVICES (2012)

A GUIDE TO FISH ENTERPRISE MANAGEMENT Computer-Based Advance Training Manual

Table of Contents

Acknowledgement .............................................................................................................. ii

Foreword ........................................................................................................................... iii

Training Objectives ........................................................................................................... iv

Topics Covered ............................................................................................................. v - vi

About Sponsors and Authur ............................................................................................... ix

Modules …………………………………………………………………..……..…. 1- 67

MODULE I

UNIT 1: MANAGEMENT AS A WAY TO INCREASE PROFITS

Fishers are continually being exposed to changes that compel them to adjust their

operations in order to increase profitability and competitiveness. These changes stem

from the market, the development of new technologies and policy shifts. They impact on

the type of enterprises held, the quantity of inputs and supplies required and the method

and destination of fish products sold. Better management skills are needed by fishers to

respond to these changes.

This Unit starts with an examination of management and the decision making

process and concludes with a number of practical exercises.

RATIONALE......................................................................................................................2

SESSION 1.1 WHAT IS MANAGEMENT?...............................................................3

SESSION 1.2 WHY IS BUSINESS MANAGEMENT IMPORTANT?.....................7

UNIT 2: THE PLANNING PROCESS

The purpose of planning is to place the fisher in the best

possible position to make decisions about the future. Once the

fisher has defined his/her objective(s) the next step is to develop a

plan to achieve them within the opportunities offered by the

marketplace. This unit analyses the planning process!

The real value of creating a fishing enterprise plan is not in having the finished

product in hand; rather, the value lies in the process of researching and thinking about


your business in a systematic way. The act of planning helps you to think things through

thoroughly, study and research if you are not sure of the facts, and look at your ideas

critically. It takes time now, but avoids costly, perhaps disastrous, mistakes later.

RATIONALE......................................................................................................................8

SESSION 2.1 THE PLANNING PROCESS...............................................................9

SESSION 2.2 WHAT ARE THE FISHER'S OBJECTIVES?....................................13

SESSION 1.3 HOW DO FISHERS DECIDE?..........................................................14

UNIT 3: UNDERSTANDING FISHING AS A BUSINESS

(WITH INTRO TO COMPUTERS)

This Unit explains the concept of the fishing operations and

its different enterprises and introduces the trainee to some of the key

terms used in management. These are costs of sales, gross income,

gross margin, enterprise profitability and gross profit (net income).

RATIONALE .....................................................................................................................16

SESSION 3.1 UNDERSTANDING AGRICULTURAL ENTERPRISES ................16

Gross Income .............................................................................................................16

Costs of Extraction ..................................................... Error! Bookmark not defined.

Fixed & Variable Costs ..............................................................................................19

SESSION 3.2 GROSS MARGIN................................................................................21

SESSION 3.3 ENTERPRISE PROFITABILITY ........................................................21

SESSION 3.4 GROSS PROFIT (NET INCOME)...................................................... 23

MODULE II

UNIT 4: ACCOUNTING FOR FISHERS Accounting for Agriculture deals

with the collection and analysis of financial information (data) and resources. The

knowledge of the type, quality, and quantity of resources available (Assets) and the

obligations or debts owned by the farm (Liabilities) are needed to ensure

that all resources are managed properly.

Fishers are required to know and keep up-to-date records of sales

(Income) and costs (Expenses) as it impacts on overall profitability. The

training also describes the calculation of Net Worth, examines the definition and use of

and preparation of Financial Statements, and assists the fisher in analyzing these

financial statements.


The training course seeks to improve fishers’ appreciation for accounting and

provide guidance for developing, interpreting, and using accounting and record keeping

systems.

RATIONALE .....................................................................................................................24

ACCOUNTING FOR FISHERS .......................................................................................24

SESSION 4.2 RECORDS AND ACCOUNTS...........................................................26

SESSION 4.3 INTRODUCTION TO FINANCIAL RECORDS................................29

SESSION 4.4 DEFINING FINANCIAL ACCOUNTS..............................................34

SESSION 4.6 BALANCE SHEET.............................................................................38

SESSION 4.7 PROFIT AND LOSS STATEMENTS.................................................40

SESSION 4.8 INTERPRETATION AND ANALYSIS OF ACCOUNTS…..…..….44

MODULE III

UNIT 5: CASH FLOW MANAGEMENT

This Unit will examine the use of the Cash Flow in planning and as a tool

for evaluating the financial performance of the enterprise as a whole. A

cash flow budget guides decision makers in assessing whether the

enterprise is able to generate a cash surplus or incur a cash deficit and to

find the time of the year where additional financial resources may be required. The unit

reviews the concept of cash flow and discusses ideas for improving cash flow

performance.

RATIONALE……………………………………………………………………………47

SESSION 5.1 DEFINITION OF CASH FLOW…………………………………….47

SESSION 5.1 CASH FLOW ANALYSIS……………………………….………….48

CASH FLOW MANAGEMENT……………………………………………….………..49

CASH INFLOWS……………………….………………………………………………49

CASH INFLOWS……………………….………………………………………………50

SESSION 5.3 PRACTICAL APPLICATION OF CASH FLOW...…….………….48

SOLUTIONS TO CASH SHORTFALLS………………………………………………53

UNIT 6: PARTIAL BUDGETS AS A DECISION-MAKING TOOL

Management is concerned with the ways in which the fisher obtains and organizes

scarce resources to achieve the goals set by the business or family. Most decisions in a


small fishing enterprise involve only one aspect of the entire operations; it may be the

need to upgrade the boat, adopt a new fishing technology or choose between one

technology, method, or technique over another.

Partial budgeting is a valuable instrument that assesses the effect of marginal

changes on overall profitability and enables the decision maker to select between

different. This Unit examines the use of Partial Budgeting in planning as a tool to assess

the profitability associated with changes that effect only part of the business.

RATIONALE....................................................................................................................54

SESSION 6.1 THE USE OF PARTIAL BUDGETING IN PLANNINGError! Bookmark not defined.

SESSION 6.2 STEPS IN PREPARING A PARTIAL BUDGET .............................56

UNIT 7: FISHING PERFORMANCE ANALYSIS

A performance analysis indicates if the fishing operation is functioning as it

should. Analysis of performance can be used to identify why certain operations are more

profitable than others.

Data needs to be collected that accurately reflects the performance and a set of

standards should be selected for measurement. A performance

analysis should be conducted periodically. Performance

indicators can draw on data collected over time from a particular

one operation/fisher or to other fishers located in the area.

RATIONALE .....................................................................................................................60

SESSION 7.1 SEQUENCE FOR UNDERTAKING PERFORMANCE ANALYSIS 60

SESSION 7.2 BENCHMARKING............................................................................. 64

SESSION 7.3 ANALYSING OVERALL PERFORMANCE .................................... 64

REFERENCES

About the only thing that can be achieved without much effort is failure! Wes Izzard


ACKNOWLEDGEMENTS

I give special thanks to the many individuals who has helped to develop this training

program which started out in 2005. Of particular importance is Mr. Norman Norris of

the Fisheries Division for his continued support of the Basic Course leading up to this

Advance Course along with his colleagues at the Division.

Special thank you goes out to Sandra Grant of the ACP FISH II Regional Manager

for the Caribbean, Mr. Gustavo Miranda, ACP Fish II Programme Coordinator, and

his colleagues Cristina Gonzalez Martin, John Purvis, and Alice Bulgarelli in Brussels

who made this management training programme possible.

I wish to acknowledge the valuable contributions of Marie-Bethsabee Santana,

Michaelle Nicholas, Mara Abraham, Stacy Jacobs, for keyboarding and data entry

services and Derrick Theophile in providing data.

I thank the Hon. Prime Minister, Roosevelt Skerrit for extending the opportunity to

work with the Fishers in Dominica and to my children and my dearest mum, Rosianna

Rosette Williams who remains my greatest inspiration.

I thank GOD for the gift to create and teach. Thank you Lord!


FOREWORD

Dominica has chosen the cooperative business structure as the medium by which

fisher folk organizations are formed and developed. There are ten (10) Primary

Fisherfolk Organizations (PFO) that works at the community level addressing common

problems of fishers. The National Association of Fisherfolk Cooperative (NAFCOOP) is

a national umbrella organization that comprises the ten PFO. It was established for the

purpose of getting fisherfolks to be more involved in the decision making process and to

be a partner in co-management with the Government of Dominica on matters relating to

fisheries. NAFCOOP functions as the advocacy group for all its members.

The Government of Dominica would like to give more responsibility to these

organization such as the maintenance and management of Fish Aggregating Devices

(FADs) sponsored by Government of Japan under the Fisheries Master Plan pilot project,

license to import fishing gear and tackle, and to serve as the medium through which it

could most effectively grant rebate on fuel to fishermen. The Cooperatives do not yet

possess the necessary capacity to do.

The PFO’s are at varying stages of development, in-terms of strengths and level

of organization. Some are well organized with physical infrastructure, serve as marketing

agents for their members, and are experience in financial management. Others have no

infrastructure, assets or any defined strategy of achieving economic viability. This poses

a disincentive to the members which is the main cause of such groups falling apart. There

is a great need for institutional strengthening and capacity building among the primary

fisheries groups. This will allow for some degree of organization and growth of the local

economies of fishing communities and improvement in the livelihood of fisherfolks.

This training is therefore designed to build the necessary capacity and to

strengthen the membership of NAFCOOP for financial and operations management and

to boost the confidence of the members of the PFOs. This will help to strengthen and

build the smaller primary cooperatives which comprise NAFCOOP. Capacity building of

these institutions will enable them to take up their role as a group of direct stakeholders in

the management and development of the fishing industry in Dominica.

This Computer-Based Management Training Programme (CBMTP) is prepared

for the Fisheries Division based on recommendations and suggestion of the Agricultural

Management, Marketing and Finance Service of the Food and Agriculture

Organization (AGSF) , the Young Farmers Programme (YFP) Training Programme

(2005) and the Basic Fisherfolks Training Course (BFTC).

The programme has been designed particularly for use in Dominica amongst

fisherfolks desirous to developing commercially-oriented and technologically-driven

fishing enterprises. The manual addresses the current challenges facing fishers, their need

for a market-oriented approach to their trade and the development of management and

computer skills to enhance their competitiveness in both domestic and regional markets.


The training is comprehensive in the range of topics covered and includes a

combination of classroom instructions and presentations, practical computer-based or

aided exercises, participatory group discussions and a model exercise. The main points of

each module are highlighted by a presentation of a basic computer application with focus

on Microsoft Excel application in fishing business management training.

The topics covered in the training will be delivered in three modules in actual training

situations and the sharing of experiences of many fisher folks operating in Dominica and

the experience gained has been incorporated into the training course material.

OBJECTIVES OF THE TRAINING MANUAL

The purpose of this training manual is to provide Dominica’s fishers, fisheries

regulators, and fishers’ co-ops with materials on the basic principles and tools of

management. Some fishers are generally technically proficient in fishing but often lack

understanding of business, internet and computer technologies (ICT), and economics and

their use in planning and operating profitable, efficient, and productive enterprises. This

programme provides advance training to these fishers. It is expected that with this

exposure to computer based business management training, they will be better equipped

to improving their management skills and love for record keeping.

Furthermore due to technological advances, smaller vessels operators/fishers are

getting much more effective at locating and catching fish and they are increasingly

engaged in fisheries that aim for marketing the products on the international market. Due

to increased pressures on inshore areas there is now mounting pressure to

“professionalize” the small-scale fisheries sector so as to make fishing effort

commensurate with the productive capacity of the resources.

The Manual and spreadsheets are useful tools for trainers, fisheries officers, fisheries

co-operative management, and other agricultural extension personnel to provide fishers

more specifically with:

1. An understanding of the principles of technical and financial efficiency;

2. Procedures for identifying technical and economic constraints in fishing;

3. Computer-based methods to analyze the performance of individual enterprises and

operations;

4. Skills in basic planning and management that assist fishers to respond to new

market opportunities.

5. An understanding that the principles and tools of management and planning is

important for all fishers.

6. An understanding and greater recognition of computer-based technologies in

fisheries management and fishing.


ABOUT THE SPONSORS

The ACP Fish II Programme, entitled "Strengthening Fisheries Management in

ACP Countries" is funded under the 9th EDF (€30M).

Weak and ineffective governance of the world fisheries has led to the widespread

degradation and depletion of the natural resource base, resulting in greater poverty among

fishing communities, a decline in food security and, in general, in sub-optimal use of

fisheries resources. Weak policies and

institutional arrangements and ineffective legal

frameworks, combined with a lack of sectoral

strategy, have been widely acknowledged as

being a fundamental obstacle to effective

fisheries management, and therefore to

poverty alleviation and food security. Ineffective governance has also resulted in high

incidence of Illegal, Unreported and Unregulated (IUU) fishing depriving ACP countries

of substantial economic revenues.

Given that millions of people in ACP countries are dependent on fisheries for livelihood

and nutrition, it is crucial that ACP countries strengthen fisheries management, both at

the national and regional levels, by developing, implementing and enforcing sound

fisheries management measures so as to ensure availability of fish to local communities,

fish processors and exporters. Effective and sustainable management of fisheries

resources is thus the most important pre-condition to continue harvesting social and

economic benefits from fisheries and fish trade.

The ACP Fish II Programme, which became operational in June 2009, is primarily

designed to improve fisheries management in ACP countries and to reinforce regional

cooperation for the management of shared stocks.


ABOUT THE AUTHOR

Reginald Oliver Severin

(ROSSE AGR SERVICES)

Mr. Reginald Severin is the manager of ROSSE

AGR SERVICES. He provides business

management and entrepreneurial development

extension services to small businesses and

producers of the agricultural and fisheries sectors

in Dominica.

Services offered are based sound economic and business principles in agricultural production

and aims to reinforce the existing technical-oriented extension services. These services include

but not limited to business planning, advising, forecasting, and management capacity

development through training.

ROSSE AGR services ‘seeks to support and strengthen opportunities that enhance

agricultural sustainability and provides the atmosphere for the development and protection of

agriculture, rural communities and peoples within a socio-economic and cultural framework.’

Mr. Severin vision lies in promoting agriculture and facilitating improvements in agricultural

productivity and management so that agriculture may become an economically viable and

socially equitable industry in Dominica.

Mr. Severin posses a Certificate in Farm Management and received practical training in small

Business Management at the Agricultural-Technical Institute of Ohio State University and

Fort Valley State University in Georgia, a Bachelor’s degree with upper class honors in

Agriculture Business Management, and graduate studies in Business Statistics, Business Law

and Ethics and Macroeconomics at Cameron University in Lawton, Oklahoma, USA.

In 2000, Mr. Severin obtained professional training in Sustainable Agriculture and Organic

Farming and Marketing at the North Carolina State University (Center for Environmental

Farming Systems) in Goldsboro, North Carolina.

Upon returning home in 2002, Mr. Severin had an assignment at the Woodford Hill Co-

operative Credit Union Ltd. where he developed and implemented the Small Business

Enterprise Development Programme while working as a freelance agribusiness development

specialist providing enterprise development planning assistance and training to both small

businesses and financial institutions in Dominica.

As one of the first trainer in the Basic Fishermen Training Course (BFTC) specializing in the

Management aspects of the training program, Mr. Severin has provided training services for

the Fisheries Division since 2005.


Aristotle, observed, “What is common to the greatest number has

the least care bestowed upon it. Everyone thinks chiefly of his own,

hardly at all of the common interest.”

TRAINING

MODULES

Prepared by REGINALD SEVERIN For the (C) 2012 ROSSEAGR SERVICES FISHERIES DIVISION

Roseau Fisheries Complex Bldg., M.E. Charles Boulevard, Roseau Commonwealth of Dominica, W.I.

Tel. (767) 266-5263, 266-5291 or 266-5292) Fax: (767) 448-0140

Email: [email protected]

mailto:[email protected]


MODULE I UNIT 1

MANAGEMENT AS A WAY TO INCREASE PROFIT

Rationale

Fishers are continually being exposed to changes that compel them to adjust

their operations in order to increase profitability and competitiveness. These

changes stem from the market, the development of new technologies and policy

shifts. They impact on the type of enterprises held, the quantity of inputs and

supplies required and the method and destination of fish products sold. Better

management skills are needed by fishers to respond to these changes.

This Unit starts with an examination of management and the decision making

process and concludes with a number of practical exercises.

At the end of Unit 1, participants should be able to:

Understand the concept of farm and

farm enterprises

Understand the concept of

management and its importance in

fishing;

Identify and discuss some of the more

important functions of management;

SESSION 1.1 WHAT IS MANAGEMENT?

The role of the fisher is twofold. He or she is at the same time fisher and

manager. The first role of the fisher is to spend time at sea to ensure the best

possible catch relative to the resources expended for the fishing trip. For the

fisher, this includes the preparatory work such as procuring fuel, food, water,

and bait, the tuning of the engine, ensuring that all fishing, navigational, and

safety equipment are in order and going out with intent to fish either through

ports raising, long and vertical line, nets. Time spent at sea can yield high

dividends or it may result in zero or low catch.

The fisher will be engaged in not only harvesting activities; he/she must ensure

that the catch is preserved and protected particularly though adequate


quantities of ice or refrigeration space. The care of the catch and safe return

on-shore are important fishing activities that influence the overall success of

each fishing trip. Personal safety and care of the fishing equipment and vessel

must be given equal attention as the physical activities involved in extraction or

harvesting while at sea.

Another role of the fisher is as manager. Just like any business, fishing

requires management. Where the skills of harvesting/extraction are mostly

physical, the skills of management involve activities of the mind backed up by

the will. They involve primarily the making of decisions, or choices between

alternatives. The decisions each fisher must make as manager include choosing

between different fishing gears or equipment and technology that might be

employed in fishing, choosing what type of vessel to invest in and deciding how

much time (effort) engaged in harvesting, especially at times of the year when

the combination of ecological (fish breeding), economical (loan payments due),

environmental (hurricane season) and social (school opens) factor exists. They

involve choices as to what and how, when, where fish species can be harvested

to ensure maximum returns at minimum costs to the fishing operations.

As agriculture becomes more market driven, and commercial in nature, the

fisher must develop better skills in buying and selling when to sell, whom to sell

and how much to be sold, use of management tools associated the computer and

internet technology, and technologies such as the global information systems or

positioning systems (GPS/GIS). Farmers must decide whether or not to

purchase improved technology, engine and vessel or gear. They must decide

whether or not to employ additional labour and the level of investment to be

made in skills’ development.

The kind of decisions taken by fishers as managers can be summarised as:

Making choices of different fishing activities: diving, deep-sea fishing;

How to best use the resources available in fish harvesting and post

harvesting operations;

Selecting the most appropriate technology (ITC, Accounting, Navigational,

GPS) to use; and

Deciding where and whom to sell their produce and at what prices.

Exercise 1 – Common Problems Facing Fishers


These are only some of the wide range of day to day choices that managers

have to make.

Common definitions of management include “making decisions to increase

profits”, “making the best of available resources” and “using, managing and

allocating resources”. There are many others. These decisions imply a number

of factors:

Firstly, the existence of a goal or goals;

Secondly, that there are resources such as boat, labour and capital that can

be used or allocated;

Thirdly, that the resources to be used or allocated imply more than one

possible use.

Management is about doing something with the limited resources available to the

fisher. Fishers need to know how to combine these

resources optimally in order to attain a

satisfactory outcome. Fishers require improved

management skills to become more competitive as

fishing becomes more market driven. Fishers need

to develop their managerial ability so that they are better equipped to take

advantage of opportunities open to them, and to make their enterprises as

productive as possible, with increasing profits from operations.

Exercise 2 – What is Farm Management?

The fisher, however, is also a member of a family and local community. In effect

decisions are made by the fisher family, since different operations are carried

out by different members. But the ways in which tasks are shared vary from one

culture to another. There is a division of labour within the family between all of

its members. While most of the decisions with respect to fishing are made by

the individual fisher, decisions are made in the light of membership within the

family.

The fisher desires what is best for all members of the household and they have

a direct influence on the decisions taken. Nevertheless, the desire to secure a

better living for the family is a compelling factor in many situations to improve

the productivity of the business.


Successful management of the fishing enterprise requires the fisher to have the

following qualities:

the ability to organize and achieve specific goals and targets set by the

fisher’s household;

a good understanding of technical issues involved in the harvesting,

processing and marketing of fish products;

the ability to communicate with people to obtain good information;

the capacity to make informed and relevant decisions.

Individual fishers may already possess some or all of these qualities. However, in

order to achieve their desired objectives, the fisher must develop marketing

plans, make estimates on future events and forecasts, and adapt their decisions

in the light of technical, market and policy changes that are regularly occurring

in the broad environment within which fishing takes place. Fishers require the

skills and know how to adapt effectively to external changes and ensure

greater competitiveness.

Exercise 3 – Qualities of a Successful Fisher

Management takes time and work and is just as critical

for success as harvesting and marketing fish product.

Good fishers need to learn from their day to day

experience and recognise their mistakes, become

accountable for their actions, and be willing to change

their thinking based on new information/technology.

The common functions of management that help fishers deal with changes in

the environment are:

a) Planning: This is considered the most fundamental and important principle.

It entails deciding on a course of action, policy, and procedure and assessing

the future physical and financial performance, for enterprise as a whole.

Plans are prepared based on resources available and on personal objectives.

b) Implementation: Plan implementation includes the purchase of the inputs and

materials necessary to put the plan into effect and overseeing the process.

This is a very important function within the fishing context because in

Management is concerned with achieving the right combination of available inputs (technology, labour, and capital) in fishing.


dealing with marine environment its risks and challenges, the fisher is faced

with a large number of day-to-day decisions that need to be taken.

c) Control: The control function includes monitoring and taking corrective

action when necessary. Monitoring often requires the keeping of records of

activities that occur such as the use of fuel, supplies, and changes in stock,

sales and purchases. Such information is analysed to clarify what is occurring

or has taken place. The results of the plan are monitored to see the extent

to which the plan is being followed and producing the desired results. This

process provides the fisher with an early warning of pending problems so

that adjustments can be made accordingly.

The process of planning, implementation and control is iterative and cyclical.

Fig. 1 - The Functions of Management

SESSION 1.2 WHY IS BUSINESS MANAGEMENT

IMPORTANT?

As previously mentioned fishers operate within a dynamic and constantly

changing environment caused by:

Changing prices: Prices of inputs and outputs are constantly changing in line

with supply and demand and market forces. Changes in the prices of fish

products affect the overall business’ profitability.

Changing resource availability: The quantity available of any input has a

direct impact on profitability. Problems of availability of supplies could result

PLANNING

CONTROL

IMPLEMENTATION

NEW

INFORMATION &

TECHNOLOGY


in the reduced use of fuel, ice, bait etc. and fishers would constantly need to

reassess past decisions in relation to the resources available.

Changing technical relationships: The relationship between inputs and outputs

changes as technological advances are made. For example, a new diesel engine

may be introduced that has improved fuel efficiency over the gasoline type

outboard engines and, hence, lower operating costs. This would have an effect

of enhancing profitability.

Changing institutional/ social relations: Factors concerning access to

markets/ financial institutions, government support and private sector

linkages also affect the industry’s performance.

Although fishers are in the position to control the use of their own resources,

they cannot control the factors and conditions surrounding them. They have to

constantly assess the potential benefits of technologies and reassess the

relationship between inputs and outputs.

When new technologies are

introduced, increases in output take

place. In this event, market prices

may fall, affecting the relationship between inputs and outputs. Fishers have to

respond to these changes effectively. Improving management skills is the best

way to prepare to adapt and cope with the external changes that impact on

fisheries overall performance.

Φ Φ Φ Φ Φ Φ Φ Φ Φ Φ Φ Φ

Due to technological advances, smaller vessels are getting much more effective at locating and

catching fish and they are increasingly engaged in fisheries that aim for marketing the products

on the international market. Due to increased pressures on inshore areas there is now mounting

pressure to “professionalize” the small-scale fisheries sector so as to make fishing effort

commensurate with the productive capacity of the resources. This is particularly important in the

light of the economic and nutritional dependency on these fisheries by millions of coastal people.

The importance of involving the stakeholders in the fisheries decision-making process is

becoming increasingly recognized, as well as devolving fisheries management to the communities

themselves, and establishing defined fishing rights plays a significant role in various types of co-

management arrangements.


Fish-in-the-Global-Food-Chain-Challenges-and-Opportunities

http://www.thefishsite.com/articles/718

Rationale

The purpose of planning is to place the fisher in the best possible position to make

decisions about the future. Once the fisher has defined his/her objective(s) the

next step is to develop a plan to achieve them within the opportunities offered by

the marketplace. This unit analyses the planning process!

The real value of creating a fishing enterprise plan is not in having the finished

product in hand; rather, the value lies in the process of researching and thinking

about your business in a systematic way. The act of planning helps you to think

things through thoroughly, study and research if you are not sure of the facts, and

look at your ideas critically. It takes time now, but avoids costly, perhaps

disastrous, mistakes later.

The business planning process is a critical management tool for the following

reasons.

A plan is a blueprint for implementing a business idea and the roadmap for a

successful business by helping to minimize risk!

It is a data-base of information related to the details of a business activity

such as production processes or systems, raw material, finance, support

services and market.

It is like a roadmap which makes it possible to know if the enterprise is on

the right track and monitor achievements against objectives.

It helps in identifying future financing needs and is a valuable document

when seeking credit and other support from bankers, government and other

funding agencies.

The plan also helps to evaluate the strengths and weakness of the proposed

enterprise as well as the opportunities and threats it faces; this can be

translated into a detailed strategy and action plan for every person with

responsibilities.


UNIT 2

THE PLANNING PROCESS

http://www.thefishsite.com/articles/718


Understand the stages of enterprise

planning process

Show how the plan needs to take into

consideration the resources available

and the enterprise selected;

SESSION 2.1 THE PLANNING PROCESS

There is no single and unique strategy to guide fishers in the proper choice of

enterprises to be included in the enterprise plan. Fishers determine by

themselves what fishing activities to engage

in. Nevertheless, there are ways to facilitate

some of the common decisions taken by

fishers: i.e. whether or not to fish a

particular distance (fishing site), in which species combination to fish and at

what scale. The planning process has been designed to follow a series of steps

and is based on physical and financial data.

The planning process involves the following:

Step 1: Formulating Goals and Objectives

Step 2: Preparing a Fishing Enterprise Resource Inventory

Step 3: Identifying Opportunities

Step 4: Estimating Gross Margins and Choosing Enterprises

Step 5: Preparing the Complete Fishing Enterprise Budget and Action

Plan

The steps given in Figure 2 are elaborated below.

Step 1: Formulating Goals

This step typically begins with identification of the Fishing Enterprise

household goals and a listing of the priorities to the fisher. This may simply

consist of a single goal such as maximisation of profit or competing goals such

as increased profit and leisure. The goals reflect the operations-family

preferences. This step is closely linked to the decision-making process.

Step 2: Preparing a Fishing Enterprise Resource Inventory

Planning is the selection of objectives and goals and the methods to reach them.


The second step involves the preparation of a resource inventory and

assessment of operation’s resources (e.g. vessel - including engine and fishing

gear, navigational and safety equipment and human resources).

Background data on the physical resources of the operations and its past

performance (catch, sales, and effort) is required to complete the inventory.

The resource inventory is used as a base to identify problems and constraints

on physical and financial performance.

Step 3: Identifying Opportunities

This step starts with a careful assessment of market and consumer demand.

Even if the resource inventory shows that certain fishing enterprises are

technically feasible, enterprise identification must take into account market

opportunities. The market appraisal should include an assessment of the

demand for the product, the marketing arrangements and probable prices that

can be attained, availability, cost and quality of purchased inputs, and

transportation and storage of the final product. The range of potential

opportunities identified and evaluated could be broad and would need to be

reduced through a process of “short listing”. The wide range of options open

for consideration should be reviewed in the light of the goals defined in Step 1.

Ideas and suggestions for activities can come from discussions held with family

members, other fishers or fisheries officers all of which could provide

important sources of new information.

Step 4: Preparing Enterprise Budgets and Selecting the Most Profitable

The next step is to assess the financial performance of the enterprises. It can

be expressed through cost and income estimates for the different enterprises

on a per unit catch or per unit effort. For many fishers the decision on what

enterprises to include in a plan is based on personal experience and preference,

together with considerations of comparative advantages of the different

activities.

Often fishers do not change their plan on a regular basis, and slight

adjustments and modifications are usually made to the existing enterprise

combination. In this event, the planning process primarily focuses on preparing

budgets of existing enterprises. However, fishers responding to market

changes may decide to introduce new enterprises and these would need to be

budgeted out to assess their contribution to operations income.


Step 5: Preparing a Complete Budget and an Action Plan

This is the last step in the planning process. The whole enterprise budget

checks the effect of changes in the cropping pattern and the introduction of

new enterprises on the economic viability of the entire operations. The starting

point for preparation of the whole enterprise budget and ultimately the action

plan is the gross margin of individual enterprises. This information would need

to match the volume of physical resources available to the fisher, and decisions

taken as to the most viable enterprise. The decision would require reconciliation

between physical characteristics of the resource base, market opportunities,

use of other resources (labour and capital) available to the Fisher and individual

preferences of the fisher’s family. This often involves a process of trial and

error.

Once the enterprise combination has been selected, the overall gross margin

and whole enterprise income is assessed. The latter would require the

preparation of an inventory of the fixed asset requirements. The difference

between the overall gross margin and the fixed costs provides an estimate of

whole enterprise income.

An action plan could be prepared taking into account physical and financial

aspects of the plan. The plan could include an assessment of equipment

suitability and enterprise selection, planned calendar of operations, schedules

of supplies required, an assessment of investments, labour profiles and cash

flow projections and enterprise budgets.

Fig. 2 - Procedure for Developing a Plan

Step 1 Formulate Goals and Objectives

Step 2

Prepare an Operations’ Resources Inventory

Step 3 Identify Opportunities

Step 4 Preparing Budgets and Select the Most Profitable

Enterprises

Prepare a Complete Budget and Action Plan


Remember:

Planning is a primary management function; it involves “thinking,” which

is often more difficult than “doing.”

Step 5


SESSION 2.2 WHAT ARE THE FISHER'S OBJECTIVES?

In order to improve management, it is important to understand the expectations

of fishers and their families. Fishers tend to have a number of objectives that

guide their choices between alternative actions.

Some of these are:

Maximising profits;

Increasing catch (C) and actual sales;

Increasing effort (E) and improving catch per unit effort (CPUE);

Minimising costs;

Avoiding debt;

Achieving a ‘satisfactory’ standard of living;

Reducing the risks involved in fishing;

Transferring the business to the next generation ;and

Ensuring stable food supplies for the family.

Fishers often have multiple objectives and some may even conflict. Nevertheless,

for market oriented production an important common objective is profit.

Remember that in the long-term profit must be sufficient to cover family

expenses and extraction costs related to the fishing business.

Objectives vs. Goals

Objectives Goals

Prescribes Scope Specific

Provides General Direction Measurable

Long Run Achievable

Overall Result Realistic

Ultimate Aim Time-oriented

VISION: What you will be as a result of…

MISSION: What needs to be done…

OBJECTIVES: What will be the result of pursuing the mission…

GOAL: What time (When) or How much (value) will be the

result…


STRATEGY: What activities must be done to accomplish the

result!

Exercise 4 – Formulating Goals & Objectives …Developing a

Vision/Mission

SESSION 1.3 HOW DO FISHERS DECIDE?

Fishers continually make decisions and it is the role of fisheries officers to

support them in doing so. The steps taken in the decision-making process are

summarized as:

Identify the

problem and collect

data/information

Identify and

appraise

alternative

solutions

adopt the best

Make the decision -

alternative

THE DECISION-MAKING

PROCESS

Implement the

decision

Follow-up and

monitor the

decision

First Step - Identify the problem and collect data/information: The first

stage of the process is to recognize the existence and nature of the problem.

This stage calls for the collection of data on current performance as the basis

for making improvements to the business operations. For example, data could

be collected to analyse performance in comparison to other similar fishing

enterprises in the vicinity. The problems identified might be due to the use of

obsolete or inappropriate fishing techniques, failure to employ new

technologies, constraints on marketing and limited alternative market channels.

Second Step - Identify and analyse alternative solutions: Possible solutions

to the identified problems may include increasing the use of purchased inputs


and materials, and introducing improved bio-fertiliser and pest management

methods amongst others. The consequences of the alternative actions would be

evaluated to assess their likely impact on Fishing Enterprise performance.

Third Step - Make the decision and adopt the best alternative: Which of

the alternatives is most likely to improve performance? Since it is rare that all

the information required in making a decision would be available, selection often

requires judgement by the fisher before a decision is made. The final decision,

therefore, will frequently reflect the fisher’s attitude towards risk and more

specifically, the perceived risks of each of the alternatives.

Fourth Step - Implement the decision: Fishers have a role in implementing

decisions and enforcing the action needed to ensure that the decisions are

followed. In a small fishing enterprise, very often different members of the

family undertake the planning and implementation tasks.

Fifth Step – Follow-up: Once the first four (4) steps have been completed, it is

useful to review the results of the decisions taken. Having identified the changes

made, it is important to contribute to continue monitoring progress to ensure

that new plans are being followed and that revised targets are being achieved.

There are three different time horizons within which decisions are taken in

fishing. These are:

a) Short-term. These decisions are concerned with the daily organization for

fishing operations such as boat and engine servicing, supplies (bait, ice,

water, food, fuel, lubricants) procurement, checking equipment, harvesting

/extraction, fish disposal (direct selling, processing, or storage). They also

involve selection /grading of captured stock, recordkeeping, navigational and

safety interventions, choice of fishing site or ground, landing site, and timing

of effort.

b) Medium -term. These are concerned with the annual organisation of the

business e.g. preparing the action plan, deciding on the amount of labour to

use and whether to introduce fishing technologies, equipment, and

techniques, improve storage capacity, and adopt new safety and navigational

practices and technologies.

c) Long-term. These decisions relate to the long-term nature of the business

e.g. whether or not to expand fleet size through purchasing or leasing

additional vessels; and whether or not to invest in new engine, boat, and/ or

purchase of new technology and equipment.


Short-term decisions are operational in nature, medium and long-term decisions

are concerned with capital investments.

Rationale

This Unit explains the concept of the fishing operations and its different

enterprises and introduces the trainee to some of the key terms used in

management. These are costs of fish sold (cost of sales), gross income, gross

margin, enterprise profitability and gross profit (net income).


Acquire knowledge on the concepts of fishing operations: costs, income,

gross margin, and profitability;

Understand the classification of

costs into variable and fixed and its

importance in the decision-making

process;

Use computer tools to better understand the concepts and perform simple

calculations.

SESSION 3.1 UNDERSTANDING AGRICULTURAL

ENTERPRISES

There are several restrictions and opportunities in managing farm enterprises.

Knowledge of enterprise gross income, costs of extraction /harvesting

(fishing), gross margin and profitability is essential for both fishers and

regulators.

Gross Income

Gross Income is the value of the output of an enterprise. The gross income is

obtained by multiplying the physical output by the landed price of fish and

UNIT 3

UNDERSTANDING FISHING AS A BUSINESS

with an Introduction to Computers in Management Training


valuing home consumption. The landed price represents the point of first sale.

It is incorrect to calculate gross income for the enterprise by using the price

at which the fisher sold the fish in the marketplace or elsewhere off the

landing site. The costs of transportation and other marketing expenses need to

be deducted from the market price in order to arrive at the gross income at

the landing site.

Since it is possible to harvest fish of different species, types and sizes in

different locations and fishing grounds within a year, a distinction needs to be

made between gross income for a particular season and gross income for a

particular year. The gross income of a fishing operation for the year may be

the sum of the gross income for two or more species harvested/extracted

during the year.

Some enterprises extend over a longer duration than a single year. In these

cases, gross income is defined more precisely as the difference between the

closing valuation of fish stored plus sales (including marketable fish and by fish

consumed) and the opening valuation of fish stored plus purchases.

A gross income calculation for a fishing enterprise could be set up as follow:

Closing Stock (at the end of the year) $EC .................... (+)

Opening Stock (at beginning of the year) $EC .................... (-)

Increase/Decrease in Stock $EC ...................

Total Sales $EC ....................

Products used for Bait $EC .................... (+)

Products used for personal consumption $EC .................... (+)

Sub-total $EC ....................

Purchases of Fish (during the year) $EC .................... (-)

Gross Income $EC ..................

Changes in value of the value of fish stored by the operations would be part of

the gross income calculation.

The factors that influence the gross income of an enterprise can be

summarised as:

the value of fish sold both directly or via intermediaries;

the value of fish products re-used as bait - fish which is used again as input

in the fishing operations. For example, fish is used to prepare long lines used

to fish or placed in traps to attract new catch;

the value of fish consumed by the fisher and his/her family - for example

lobsters, , etc. consumed by the fisher's family, and valued at the landed

price;


the gain/loss in value of fish - increase or decrease in value of fish stored at

landed price. It is the difference in value at the beginning of the year

(opening valuation) and the value at the end of the year (closing valuation).

the gain/loss in value-added of stored fish - in the case of fish from a

previous harvest or season, fillet, smoked, dried, frozen, and stored ready to

be sold. This is the difference in value from the price that the fish is landed

to the final value-added price that it is sold. It considers the quality of the

fish which is a highly perishable product.

Exercise 5 – Calculating Gross Income

Costs of Extraction

It is important to understand the structure of costs of extraction.

While the fisher does have control over some of the costs, they tend

to have little or no control over the prices received for most of their

products.1 This is often the case as fish prices are determined by both local

and global factors. Therefore, in the event that fishers wish to increase their

income, they should attempt to reduce the cost per unit of output.

The method used for cost of fish landed calculation is given below. 1 Cost of Fish Landed

a Fuel & Oil Total Mileage Fuel Consumption per Mile Total Consumption (Gallons) Unit Price per Gallon Total Fuel Cost

b Labour (Effort) Number of Fishers Ave. Unit Wage per hour No. of Hours at Sea (Effort) Total Cost of Labour

c Ice and Food Supplies Unit of Ice Used Cost of Unit Total Cost of Supplies

d Bait Purchases Total Value of Artificial Bait Purchased Useful Life of Bait Total Number of Trips Cost of Bait Used

e Fishing Landing Handling Charges Landing Fees Total Handling Charges

TOTAL COST OF FISH LANDED

1 Price takers – Have very little or no influence on the factors affecting the price received at the market.


TOTAL COST is usually classified into two categories: variable and fixed

costs. The classification of a particular cost as variable or fixed depends partly

on the nature and timing of the management decisions being considered. Some

costs are fixed in relation to certain decisions but others remain variable.

Variable Costs

Variable costs are short-term costs (usually made within one year or within a

single production cycle) and include items that:

- occur only if fish is harvested /extracted (and do not occur if nothing is

extracted);

- tend to vary according to the size of the fishing enterprise (with type of

fishing gear or the fishing effort); and

- can easily be allocated to individual enterprises.

For example, considerable labour is required in fishing. If a fisher has to hire

labour, then as extraction increases, so too will the need for hired labour.

Similarly, fuel costs for boat engine increase as the use of the motor increases;

or the greater distance from land fished, the higher the fuel costs. Thus,

variable costs in fishing are usually costs of fuel and lubricants, bait, food,

landing fees, storage fees, hired labour, etc.

The variable costs of a fishing enterprise could include, for example:

Fuel & Lubricants: This represents the highest cost item for operations in

a fishing enterprise. Traditionally diesel fuel engines are more economical

due to the nature of operations of the internal combustion engine and

because it is a heavier hydrocarbon fuel.

Food Supplies: This is normally purchased but could include items taken

from or prepared at home. The supplies must be adequate to provide for

any mishap and be sufficient for all parties on board.

Fishers’ Wages: This represents hired labour paid as a percentage of the

catch.

Bait supplies: This is the value of bait used for the trip.

Landing Fees:

Fixed Costs

Fixed Costs are generally long-term costs (lasting

for more than one year) and are defined as costs that

As a general rule, a reduction of fixed costs where production is not affected will lead to increased profit. Higher fixed costs places strain on the operations and pressure to increase productivity.


remain the same regardless of the size of the enterprise and do not alter with

small changes in size. The allocation of fixed costs to a specific enterprise can

be difficult, in some cases. Fixed costs (e.g. fishing equipment) are more

difficult to allocate. The vessel, for example, tends to be used in all fishing

operations, port or gill-net activities. If the operation adds an extra activity

such as long-line fishing, the costs of the vessel will hardly be increased. If the

fisher stops fishing altogether, some of the vessel costs will still be incurred.

Of course, the operating costs of using the vessel, and in particular the cost of

fuel, are variable but the capital cost of the vessel (interests) is fixed.

Other fixed costs such as depreciation2 on vessel and engine, maintenance and

repairs, regular labour: (boat captain), insurance, and rental of boat house and

mooring fees, may need to be computed for the whole enterprise since they can

not be directly allocated to a specific activity.

FIXED OR OVERHEAD COSTS CALCULATOR

ASSUMPTIONS Years Months Weeks Trips lb

Trips per week 3

Active Fishing Weeks per Month 4

Active Fishing Months per Annum 9

Average Catch 65,041 7227 1807 602

Depreciation

Useful Life of Boat 15 135 540 1620

Purchase Cost of Boat $ 25,000

Less Salvage Value $ 0

Useful Life of Engine 5 45 180 540

Purchase Cost of Engine $ 9,000

2 Machinery depreciation: The annual cost of capital items is called depreciation cost. Depreciation charge is included to reflect the fall in value of machinery in a year. A rate of

depreciation is applied depending on the class of equipment involved. For example, powered

equipment (out-board motors, in-board engines, etc.) will usually carry a depreciation rate of

10-15% per annum whereas still equipment (fish finders, ports, long-lines, FADS, etc.) is

usually depreciated at 10-25%.

The annual cost of depreciation of a capital item can be calculated as follows:

Purchase price - Salvage value

---------------------------------------- = Annual depreciation cost Useful life in years

Where: Purchase price = is the value of the capital investment at the time of the purchase.

Salvage value = is the value of the implement at the time it has come to the end of its

useful life.


Less Salvage Value $ 0

Total Annual Depreciation $ 3,466.67 385.19 96.30 32.10 0.05

Labour can be either supplied by the farm family or hired. Hired labour is

treated as a variable cost as noted above. Family labour is sometimes treated as

a variable cost and on other occasions as a fixed cost. Where the fishing

operations are shared between the adult members of the family on a regular

basis throughout the year, family labour is treated as a fixed cost. However,

whenever the operations is not owner operated, but receives seasonal inputs

from family members, their labour contribution could be treated as a variable

cost.

SESSION 3.2 GROSS MARGIN

Gross margin is a simple, useful and practical tool to assess performance. The

gross margin for an enterprise is defined as the gross income minus its variable

costs.

Gross margin = Gross income - variable costs

A fisher who uses his or her resources to extract fish worth $600 at a

variable cost of $100 generates a gross margin of $500 ($600-$100). The

gross margin is a measure of what the enterprise is adding to profits.

Variable costs rise and fall as fishing output expands and contracts. The fixed

costs are not affected. It is only the variable costs and value of output that

increase. If the extra variable cost is less than the value of extra fish, the

fisher increases profits by as increases in fishing effort occur. Profits will be

increased by the value of the gross margin.

SESSION 3.3 ENTERPRISE PROFITABILITY

Enterprise profit shows the fisher’s gain after taking into account the full

operating costs of the enterprise. Some enterprises may be highly profitable,

while others are either unprofitable or less profitable. In order to identify

problems of low profitability, enterprise profitability analyses need to be

conducted for different fishing activities or species.

The calculation of enterprise profitability consists of deducting all of the

costs incurred for the enterprise i.e. fixed and variable costs, from the

enterprise gross income. When the enterprise gross margin was calculated


Gross

Income

Fixed

Costs

Enterprise

Gross Margin

Enterprise Profit or

Loss

minus equals

minus

above, the variable costs were taken into account but not fixed costs. Now in

calculating the enterprise profit the total cost of operations – fixed as well as

variable - is considered.

Enterprise profit calculations assume that the fixed costs can be allocated to

the enterprise. This may, however, in some cases be difficult to assess. The

allocable fixed costs may include family labour, rental charges, repairs,

depreciation and interest on vessel, engine, and equipment, taxes and other

costs. Rents (mooring, boat shed use) are divided according to the size of the

area used, value of total investments, and the projected annual catch.

Family labour should also be allocated to the enterprise and can be valued as if

it were all hired. The time spent at sea would need to be accounted for and the

result multiplied by the going wage for hired labour.

Interest is defined as the payment for the use of borrowed capital. Since the

capital requirements of the operations may be supplied partly by the fisher and

partly by outside sources, it is usually difficult to determine how much interest

should be included in the cost.

For the purpose of costing the enterprise, interest should be imputed at the

market rate for all costs incurred for the enterprise as though all money

required for fishing were borrowed.

Enterprise profitability is conducted by allocating all income and costs among the individual fishing activities being carried out.

Variable

Costs


The factors affecting gross income and profitability of a typical fishing

enterprise are indicated in the example on page 22.

SESSION 3.4 GROSS PROFIT (NET INCOME)

Gross Profit (Net Income) is the year-by-year profitability of the operations

as a whole. It is the reward for labour, capital, and management contributed by

the fisher’s family during the year. There are two ways of calculating gross

profit; either by using gross margins or conducting enterprise profitability

calculations. Gross Profit is calculated by combining the gross margin of each of

the fishing activities and deducting fixed costs. Alternatively it could be

calculated by estimating the profit for each of the enterprises and aggregating

to the level of the operations.

The final income figure reflects the profit of the business and is the reward

for the capital and management contributed by the

fisher and his family during the year. Gross Profit is

necessary to cover the family living expenses and

payments of loan principals. The amount left over

after accounting for living expenses and loan payments can be reinvested into

the fishing operations.

Gross Margin

Gross Profit (Net

Income)

Gross Income

Gross Margin

Variable Costs

Fixed Costs

=

=

-

By measuring net income, the economic strength of the

fishing operations can also be measured.

-


Factors Affecting Gross Income and Profitability of a Fishing Enterprise

climate

fishing effort

vessel type, size

engine type, hp

fishing site (ground)

Yield species type, population

time of year

fishing gear

fishers' experience

% spoilage

time in which it is sold

sales - direct, wholesale

Price species type

quality

less

Fuel and lubricants

Bait material

Supplies (ice, food, water)

Labour

Telecommunications

Miscellaneous

less

Permanent labour

Vessel Insurance & Depreciation (owned or rented)

Other rents, (mooring, boat shed)

Financing costs (transaction, interest costs)

Miscellaneous

equals

GROSS INCOME

Variable Costs

Fixed Costs

ENTERPRISE PROFIT or NET INCOME


NOTES


Rationale

Accounting for Fishers deals with the collection and analysis of financial

information (data) and resources. The main purpose of keeping records is to set

the financial position of the operations and to calculate its profit or loss during a

given accounting period. Data and accounts provide the necessary information to

prepare a plan and budget designed to increase efficiency and profitability.

The knowledge of the type, quality, and quantity of resources available (Assets)

and the obligations or debts owned by the enterprise (Liabilities) are needed to

ensure that all resources are managed properly. The unit also describes the

calculation of Net Worth, and examines the definition and use of Financial

Statements.


Understand the importance of

data and information gathering in

planning and analysing.

Understand the difference

between data and information and

know the types of information

needed for decision-making.

Design simple record books for small fishers using the computer;

Understand the concepts of a fishing enterprise assets and liabilities and

the different categories;

Prepare lists of assets and liabilities sorted according to group and type

(assets, liabilities, fixed and current assets, short- and long-term liabilities);

Understand the concepts and uses of a balance sheet and profit and loss

statement;

Understand the concept of net worth and techniques for its calculation;

SESSION 4.1 DATA COLLECTION

Fishers are continually exposed to new data and information that affect how

their businesses are organized, what, how and when fish products are

harvested, and what type and quantity of inputs should be used, etc.

MODULE II UNIT 4

ACCOUNTING FOR FISHERS


Understanding the rural communities is necessary because the constraints and

development potentials of fishing activities are largely determined by these

factors and resources.

Data refer to the raw numbers and facts such as prices, costs, quantities etc.

Information is data that is processed in a way that is useful for decision-

making. The relationship between data, information and decision making is given

below.

The categories of data that facilitates the decision making process can be

summarised as follows:

Categories Specific Data

Technical and physical Catch, effort, weather, gear, fish sites, labor …

Economic Input prices, Sales, contracts, sources of

credit, customer lists

Social Culture, organizations, facilities

Institutional Support services, private organizations

Political Policies and priorities

SESSION 4.2 RECORDS AND ACCOUNTS

Fishing records provide useful information for fisheries officers

to help fishing enterprises increase their profits, adjust

practices, select the best investment options /strategies,

determine the best use of available resources, obtain credit and

formulate harvest/extraction plans. Accounts are drawn up and

are used to measure the financial performance of the enterprises.

More specifically, records and accounts can to assist in:

Evaluating the enterprise’s financial position in relation to its objectives;

Data Processing Information Decision-making


Measuring the outcome of decisions and therefore allowing the fishing

enterprise to benchmark financial data to be compared with others in the

industry;

Controlling the daily routine operations and enabling the fisher to know

what have been spent and done at any given time during the year;

Evaluating alternative strategies for controlling the available resources and

therefore help the fisher/manager to spot where the enterprise is strong

and where it is weak;

Financing the fishing business operations; and

Meeting legal requirements.

Apart from its potential use in management decision-making, fishing records

are sometimes used to formulate national policies, programmes and action plans.

A typical example is in exploitation planning.

Various types of fishing records are needed to assist the Division in monitoring

and evaluating fisheries performance. Physical and technical records help to

diagnose the various aspects of the enterprises’ operation and prevent

emerging problems. Some of the most commonly used records are:

1. Operational records: These serve the daily needs of fishing enterprises in

managing their operations and are designed to control specific activities. A

series of tables can be used for collecting such fishing operations data.

Some of the most common non-financial records are:

The Fishing Resources Map: This is a GPS generated drawing of the salient

features of the fishing sites or grounds. These sites must be properly

identified and their potential determined. This is useful for exploitation

planning the number and list of fishers using the resource, the number of

vessels operating at each landing site, the total list of crew, fishers’

potential investments such as vessel and gear type, information and

navigational systems, safety planning etc.

Catch & Effort Records: These provide fishers with valuable information on

extraction output (fish catch) by species and seasons, quality and

effectiveness of gear used, the daily effort, and the overall productivity

measured by catch per unit effort (CPUE). These will assist in formulating

production/extraction objectives (annual total catch) and economic

objectives (total and per capita annual incomes), ecological goals (control of


exploitation, reduce by-catch) and biological goals (stock status and level of

overfishing). (See Table 4.1)

Vessel and Equipment Records: These records the expenses involved in

equipment use/operations and the nature and type of repairs. The type of

gears used for fishing, navigation and safety and a depreciation schedule of

all assets.

Table 4.1 FISH CATCH RECORD

REG. # : Trip 1 Trip 2 Trip 3

Month: Date: Date: Date:

Species Group ID Species Name Count Weight (lb) Count Weight (lb) Count Weight (lb)

DORADOES 0 0 0 0 0 0 0

TUNA 0 0 0 0 0 0 0

SWORD FISH 0 0 0 0 0 0 0

RED FISH 0 0 0 0 0 0 0

BLUE MARLIN 0 0 0 0 0 0 0

KINGFISH 0 0 0 0 0 0 0

BY- CATCH 0 0 0 0 0 0 0


TOTAL CATCH 0 0 0 0 0 0 0

START END START END START END

EFFORT Hours

Days

CPUE #DIV/0! #DIV/0! #DIV/0! #DIV/0!

Labour Records: These record labour inputs as expressed in hours or days

of fishing (Effort Record above) and the corresponding compensation in cash

or kind.

TABLE 4.2 LABOR RECORDS

Reg. # : Trip 1 Trip 2 Trip 3


PURCHASES UNIT Days $ Days $ Days $

Captain $/Day

Mate $/Day

Fisher 1 $/Day

Total 0 0 0 0 0 0 0

Fuel Use Records: These refer to information on quantity of fuel consumed

in the fishing process and the overall influence of fuel prices on the

profitability of operations. The following Table 4.3 represents a simple

example.

TABLE 4.3 FUEL USAGE RECORD

Reg. # : Trip 1 Trip 2 Trip 3


PURCHASES UNIT Q $ Q $ Q $

FUEL gallons

Oil (Engine) quarts

Oil (Steering) quarts

Total 0 0 0 0 0 0 0

Fish Sales Records: Table 4.4 refer to information on market transactions

and performance based on fish species. This includes contracts and their

performance, movements in sales, consumer preferences and demand, and

the overall market demand and supply dynamics.

TABLE 4.4 FISH SALES RECORD

REG. # : Trip Number:


Month: Date:

Species Group ID Species Name Unit Price ($) Weight (lb) Sales ($) Balance ($)

DORADOES 0 0 0 0 0

SESSION 4.3 INTRODUCTION TO FINACIAL RECORDS

Financial records (Accounts) may be used as data sources for assessing

profitability, for statistical purposes and as a basis for enterprise evaluation.

Financial records are also known as accounts and are represented by financial

statements. The main types of financial statements are the balance sheet

(Session 6.7) and the income statement, also known as the profit and loss

statement (Session 6.8). The balance sheet is a report of a business's financial

condition (assets, liabilities and capital) at a specific moment in time and the

income statement is a summary of the enterprise’s profit and loss for a specific

period of time, generally a month, quarter or year.

Accountability

Accounting is about ACCOUNTABILTY.

Most businesses are externally accountable for their actions and activities. They

will produce reports on their activities that will reflect their objectives and the

people to whom they are accountable. It is not easy to provide a concise definition

of accounting since the word has a broad application within businesses and

applications.

The American Accounting Association defines accounting as follows:

"The process of identifying, measuring and communicating economic

information to permit informed judgements and decisions by users of the

information!”

How Accounting Information Helps Businesses Be Accountable

As we have said in our introductory definition, accounting is essentially an

"information process" that serves several purposes:

- Providing a record of assets owned, amounts owed to others and monies

invested;

- Providing reports showing the financial position of the business and the

profitability of its operations

- Helps management actually manage the business

- Provides a way of measuring a business' effectiveness /efficiency


- Helps owners monitor activities and performance

- Enables potential investors or financiers to evaluate a business and make

decisions

There are many potential users of Accounting Information, including

owners/shareholders, lenders, customers, suppliers, government departments

(e.g. Social Security), employees and their organisations, and society at large.

Anyone with an interest in the performance and activities of a business or

organisation is traditionally called a stakeholder. For a business or organisation

to communicate its results and position to stakeholders, it needs a language that

is understood by all in common. Hence, accounting has come to be known as the

"language of business."

There are two broad types of accounting information:

(1) Financial Accounts: geared toward external users of accounting information

(2) Management Accounts: aimed more at internal users of accounting

information

Although there is a difference in the type of information presented in financial

and management accounts, the underlying objective is the same - to satisfy the

information needs of the user.

- The "measurement" of accounting information is not a straight-forward

process. It involves making judgements about the value of assets owned by a

business or liabilities owed by a business. It is also about accurately measuring

how much profit or loss has been made by a business in a particular period. As we

will see, the measurement of accounting information often requires subjective

judgement to come to a conclusion.

- The definition identifies the need for accounting information to

be communicated. The way in which this communication is achieved may vary.

There are several forms of accounting communication (e.g. annual report and

accounts, management accounting reports) each of which serve a slightly

different purpose. The communication need is about understanding ‘who’ needs

the accounting information, and ‘what’ they need to know! Accounting information

is communicated using "financial statements"

These needs can be described in terms of the following overall information

objectives:

Collection Collection in money terms of information relating to transactions that have resulted from business operations


Recording and Classifying

Recording and classifying data into a permanent and logical form. This is usually referred to as "Book-keeping"

Summarising Summarising data to produce statements and reports that will be useful to the various users of accounting information - both external and internal

Interpreting and Communicating

Interpreting and communicating the performance of the business to the management and its owners

Forecasting and Planning

Forecasting and planning for future operation of the business by providing management with evaluations of the viability of proposed operations. The key forecasting and planning tool is the "Budget"

It suggests that accounting is about providing information to others.

Accounting information is economic information - it relates to the financial or

economic activities of the fishing business or organisation.

The Accounting Cycle

The following represents the typical process of preparing accounting information.

This is called the accounting cycle:

1. OBTAIN SOURCE DOCUMENTS

Sales and Purchase Invoices

Debit & Credit Notes from Bank /CU

Cheque Slips & Bank Slips

Cash Receipts & Payment Vouchers

2. MAKE ORIGINAL ENTRIES

Cash Book

Sales/Purchases Journal

The Journal

3. MAKE DOUBLE ENTRY The General Ledger

4. CHECK MATHS Trial Balance

5. CALCULATE PROFIT or LOSS The Income Statement

6. CLOSE FINANCIAL POSITION The Balance Sheet

The source documents must contain details of transactions (Dates, Description, Folio or Reference #, and

Monetary Amount)

- Accounting information needs to be identified and measured. This is done

by way of a "set of accounts", based on a system of accounting known as double-

entry bookkeeping. The accounting system identifies and records "accounting

transactions".


The Accounting Equation

The accounting equation is based on the following premise that:

RESOURCES SUPPLIED BY YOU = RESOURCES IN YOUR BUSINESS

Therefore, CAPITAL = ASSETS

When others supply resources a liability is created, thus,

CAPITAL = ASSETS + LIABILITIES.

What value is then represented by resources in the fishing business?

ASSETS = CAPITAL - LIABILITIES

(Resources in Fish Operations) (Resources you OWN) (Resources others

Own)

Therefore your fishing operation’s NET WORTH / Equity Status / Capital is

represented not by the TOTAL ASSETS but by the resources you OWN in the

Fishing Business!

Accounting Transactions

The Accounting Equation must always remain equal, this means that a

transaction on one of the three (Assets, Capital, Liabilities) must effect

an opposing transaction in either of the three (Assets, Capital, Liabilities).

NB: A list of transaction is provided.

For example, an increase in Assets (such as purchase of an 85 HP Engine) may cause

a decrease in Assets (cash) or an increase in Liabilities (loan) or a decrease in

Capital (use of profits or retained earnings).

This is a Balance sheet effect!

Similarly purchase of fuel decreases Capital (expenses) and decreases Assets

(cash) but has no effect on Liabilities. This is an Income Statement effect!

Transaction Assets Capital Liabilities Description of Effect

Open Deposit account

+ + Increase Cash & Increase Capital


Buy goods with cheque

- +

Decrease Cash & Increase Inventory

Buy goods on credit

+ + Increase Inventory & Increase Accounts Payable

Sell Fish on credit - +

Decrease Inventory & Increase Accounts Receivable

Cash sales of Fish + -

Decrease Inventory & Increase Cash

Payment on loan - - Decrease Cash & Accounts Payable

Collect on Credit sales

+ -

Decrease Accounts Receivable & Increase Cash

Use cash to buy gift

- - Decrease both Cash & Capital

Use own funds to pay loan

+ - Decrease Liability & Increase Capital

Sample Transactions

Date Ref. # Description Quantity Unit Cost Value ($) Accnt

Jan 6 001 Sale of Fresh Fish 150 lbs $8.00 1,200.00 910

Jan 8 002 Payment on Capital Loan 1 $450 450.0 710

$25,000, 9% per annum, 4 years

Jan 10 003 Donation of Frozen Fish 20 lbs $10 200.00 1060

Double Entry Bookkeeping

LEFT-HAND side and RIGHT-HAND side accounting describes the manner of which

transactions are recorded in accounts. The Double-entry bookkeeping rules require

that ASSETS are Left-hand side accounts (Debits, Dr.), and LIABILITIES and

CAPITAL are Right-hand side accounts (Credits, Cr.).

Therefore: CAPITAL = ASSETS - LIABILITIES

To Increase Credit Debit Credit

To Decrease Debit Credit Debit

So T-accounts are used to enter the transactions as follows:

Dr Cr

Left-hand side Right-hand side


The key objectives of financial management would be to:

(1) Create wealth for the

business

(2) Generate cash flow, and

(3) Provide an adequate

return on investment

bearing in mind the risks

in fishing and the

resources invested

The process by which accounting information is collected, reported, interpreted and acted on is called:

Financial Management.

Ref. No Date Particulars Code Debit Credit

001 Jan.6 Debit Cash 110 1,200.00

Credit Sales Revenue A 910 1,200.00

Cash Sales of Fresh Fish

002 Jan. 8 Debit Long-term Liability- Capital Loan 710 262.50

Debit Interest 1020 187.50

Credit Cash 110 450.00

Payment of $450.00 on Capital loan

SESSION 4.4 DEFINING FINANCIAL ACCOUNTS

Financial accounts are concerned with classifying, measuring and recording the

transactions of a business. At the end of a period (typically a year), the following

financial statements are prepared to show the performance and position of the

business:

Profit and Loss

Account

Describing the trading performance of the business

over the accounting period

Balance Sheet Statement of assets and liabilities at the end of the

accounting period (a "snapshot") of the business

Cash Flow Statement

Describing the cash inflows and outflows during the

accounting period

Notes to the

Accounts

Additional details that have to be disclosed to comply

with Accounting Standards and the Companies Act

(1994)

What is The Purpose of Financial Statements?

There are two main purposes of financial statements:

(1) To report on the financial position of an entity

(e.g. a business, an organisation);

(2) To show how the entity has performed

(financially) over a particularly period of time (an "accounting period").

The most common measurement of "performance" is profit. It is important to

understand that financial statements can be historical or relate to the future.

Financial accounts are geared towards external users of accounting information.

To answer their needs, financial accountants draw

up the profit and loss account, balance sheet and

cash flow statement for the business as a whole in

order for users to answer questions such as:

http://tutor2u.net/business/accounts/balance_sheet.htm

http://tutor2u.net/business/accounts/accounting_conventions_concepts.htm


- "Should I invest my money in a fishing business?"

- "Should I lend money to a fishing business?"

- "How much profits from which the owner withdraws?"

Definition of Assets

An asset is any right or items of value that is owned by the fisher. Assets include

cash, fish, vessel, market contract, engine, fishing, navigational,

telecommunications, and safety equipment, land, buildings, and anything else a

business owns that are expected to provide future benefits to the fisher, usually

by contributing to sales and can be given a value in money terms for the purpose

of financial reporting.

The classification of assets is based on the possibility of turning assets into cash

and their influence on fishing operations, that is, on their liquidity or ease of

conversion to cash without having any negative effect on operations.

Fixed Assets

A further classification other than long-term or current is also used for assets. A

"fixed asset" is an asset which is intended to be of a permanent nature and which

is used by the business to provide the capability to conduct its trade.

Examples of "tangible fixed assets" include real estate, boat & engine, fishing

equipment, FADS, and motor vehicle. "Intangible fixed assets" may include

goodwill, patents, trademarks and brands - although they may only be included if

they have been "acquired".

Investments in other businesses which are intended to be held for the long-term

can also be shown under the fixed asset heading.

Fishing Enterprise Assets

Assets are always measured in monetary terms. The list below shows typical

assets of a fishing enterprise:

a) Fishing Vessel, Engine, Equipment, and Machinery are basic resources and

are considered as fixed assets if owned by the enterprise. Navigational,

telecommunication, and safety equipments are also regarded as fixed

assets in fishing

b) Fish Stocks are assets that are either used to fish (harvest/extract), add

value saleable fish products (e.g. fillet, salt, cut,) or are sold directly as

frozen fish or marine products as lobsters that has not yet been harvested

and is still lying in the ports for further growth and development..


c) Fresh Fish are products that have been harvested and are currently being

landed.

d) Input stocks are the value of the material inputs used for fishing including

supplies of fuel, ice, bait, hooks, lines, fish ports, and food.

e) Cash and Cash equivalent is money at hand and money on deposit accounts

at financial institutions.

f) Receivables are money owed to the enterprise for the sale of fish. It

relates to credits of fish sales directly to individuals or through contracts

with retailers or market outlets.

g) Payables refer to money owed for services or goods procured from other

individuals, businesses and service providers.

h) Prepaid Accounts refer to services such as insurance, fuel purchases and

rents that are paid for before the period for which they are used or

required.

Assets Valuation

Assessment of farm assets is a first step to preparing the balance sheet. All

assets are expressed in monetary terms. Money is the only unit of measurement

that is common for the types of property. The most appropriate method to

determine a particular asset depends on its nature and purpose.

Regardless of method used, the concept of consistency must be maintained and

the same method should be used every time assets need to be valued. Assets

that can be easily sold on the market such as stocks of fish products are valued

by the market price they fetch. However, assets such as vessel, engine, fish

stock, and land, that are not sold or purchased are very often, more difficult to

value and less direct methods need to be used.

The following are commonly used methods of valuation:

1) Market Value: Values items that could be sold in a relatively short

period of time and for which current market prices are available. Some

examples are fish landed, frozen fish, fuel in storage.

2) Cost: Items that were previously purchased can be valued at their original

purchase cost. This method works well for items purchased recently and

for which records of their cost are still available. Hooks, lines, fuel, and

purchased bait for fishing are normally valued in this way.

3) Lower Cost or Market Price: This method values an item at both its

cost and its market value and then selects the lower value. The method has

the advantage of minimizing the chances of placing too high a value on any


item (e.g. land may increase in value because of inflation). Valuing land at

cost price eliminates any increase in value over time caused solely by a

general increase in prices.

4) Extraction Cost: Items can be valued at their cost of extraction. Fish

harvest or fish catch can be valued by this method if the costs of

extraction or enterprise records are kept.

5) Cost minus depreciation: Assets that provide services to a farm over a

period of years but loses value over time because of age, use, or

obsolescence should be valued at the original cost less all previous costs of

depreciation. Examples would be fishing equipment (port hauler), buildings,

vessel, and engine. Each year the item's value would be reduced by the

amount of depreciation for that year.

Definition of Liabilities

To acquire its assets, a fisher may have to obtain money from various sources in

addition to its own (shareholders) or from retained profits. The various amounts

of money owed by the fisher are called its liabilities. Liabilities are divided into

two categories, current liabilities and fixed liabilities.

Current (short-term) Liabilities are those debts that need to be repaid over

the year and within the time frame of the balance sheet. These include

repayments of the principal on loans due within the year, value-added and social

security taxes that have not as yet been paid out.

Fixed (long-term) Liabilities are liabilities due for payment over the year or

beyond the date of the balance sheet. They consist of contracts on inputs and

supplies, long-term loans for capital expenditures such as new vessel purchase,

introduction of a new GPS, etc.

Long-term and Current

To provide additional information to the user, assets and liabilities are usually

classified in the balance sheet as:

- Current: those due to be repaid or converted into cash within 12 months of

the balance sheet date;

- Long-term: those due to be repaid or converted into cash more than 12

months after the balance sheet date;

Definition of Capital

As well as borrowing from banks and other sources, all businesses receive finance

from their owners. This money is generally available for the life of the business

and is normally only repaid when the enterprise is "wound up". To distinguish


At any time, therefore, the capital of a

business = the assets (usually cash)

received from the owners + any profits

made by the company through trading

that remain undistributed.

between the liabilities owed to third parties and to the business owners, the

latter is referred to as the "capital" or "equity capital".

In addition, undistributed profits are re-

invested in assets (such as equipment and

the bank balance). Although these

"retained profits" may be available for

distribution to shareholders or withdrawal by owners- and may be paid out as

dividends as a future date - they are added to the equity capital of the business

in arriving at the total "owners’ equity funds".

SESSION 4.6 BALANCE SHEET

A balance sheet is a statement of the total assets and liabilities of a business at

a particular date - usually the last date of an accounting period. It is a record

of the assets and liabilities of an enterprise on the day the balance is compiled.

The balance sheet is split into two parts:

(1) A statement of fixed assets, current assets and the liabilities (sometimes

referred to as "Net Assets")

(2) A statement showing how the Net Assets have been financed, for example

through share capital and retained profits.

The balance sheet is one of a number of financial statements that summarize

the assets used by the enterprise and the financial resources invested in these

assets at a given point in time.

The main principle of the balance sheet is that total assets and total liabilities

always have to balance. Assets tell where the property of the enterprise is and

liabilities tell where the money is received. The difference between assets and

liabilities represents the net worth.

A balance sheet does not necessary "value" a company, since assets and liabilities

are shown at "historical cost" and some intangible assets (e.g. brands, quality of

management, market leadership) are not included.

Calculating the cost of fish landed is an example of Extraction/Harvesting cost

valuation. An example will be presented in Unit 3.


Table 4.5 is an example of a balance sheet. In this example, the

balance sheet is dated 30 June, 2009 and the statement has been

prepared to reflect the year-end financial conditions at a specific

point in time. The balance sheet provides a picture of solvency.3

If liabilities exceed assets, the net worth is negative and the enterprise is

insolvent. Due to changes in net worth, balance sheets prepared at different

stages of the annual operating cycle cannot be compared directly.

Table 4.5 - Example of Balance Sheet

LIABILITIES $ ASSETS $

Long-Term Liabilities Fixed Assets

Bank loan 120,095.00 Fishing Vessel 85,095.00

Diesel Engine (150 HP) 25,000.00

Other Non-fishing Assets 130,000.00

Total Long-term Liabilities 120,095.00 Total Fixed Assets 240,095.00

Current Liabilities Current Assets

Overdraft 1,000.79 Cash in Bank 13,000.00

Creditors 12,540.00 Debtors 28,062.70

Short-term loans 7,366.85 Frozen fish stock 800.00

Fuel in storage 12,000.00

Total Current Liabilities 20,907.64 Total Current Assets 53,862.70

Total Liabilities 141,002.64 Total Assets 293,957.70

NET WORTH (Asset-Liab) 152,955.06

Balance 293,957.70 Balance 293,957.70

In the example above, the balance sheet shows how the Net Worth when

added to Total Liabilities equals Total Assets. The result shows:

Liquidity or Working Capital - the cash left over after the current assets

have been sold and the current liabilities have been paid off;

Solvency - the ability to repay debts;

Net Worth - the owner's share of the enterprise.

NET WORTH

Net worth is the difference between the value of the total assets owned by

the Fishing Enterprise and the value of their liabilities. In other words it is

the residual value to the owner if the fishing enterprise were sold and all

3 Solvency means that assets exceed liabilities


liabilities paid. It represents the total equity owned. Net worth is calculated as

follows:

Net Worth = Total Assets - Total Liabilities

This calculation is usually done by using the balance sheet (see Table 4.5).

Knowing the net worth helps fishers to assess their capacity to take risks and

to estimate their total wealth. It is also useful for lending agencies, by

indicating whether there is additional collateral available.

Net worth can change over time for a number of reasons. A common change

comes from using assets to fish. The profit from fishing activities is then used

to purchase additional assets or to reduce liabilities. The net worth will also

change if there is a change in the value of the asset or gifts as grants are

received or an asset is sold for more or less than its value.

For example, if $5,000 is used to purchase a fish finder, the net worth does

not change. There is now $5,000 less in current assets (the cash used to

purchase the equipment) but an additional $5,000 of fixed assets (the

equipment).

This example shows that the net worth changes only when:

The fisher puts additional personal capital into the enterprise;

The fisher withdraws capital from the enterprise; or

The enterprise shows a profit or loss.

Exercise 7 – Calculating Net Worth

SESSION 4.7 PROFIT AND LOSS STATEMENTS

Profit and loss statements summarize the entire fishing enterprise

income and costs over a given period, usually an accounting year. If

income exceeds costs, a profit is generated. If costs exceed income

the result is a loss.

The items included in a profit and loss statement of the fishing enterprise can

be classified into six major headings:


1) Fishing Enterprise Income

The principal source of income is from the sale of fish, and other marine

products. Sales receipts refer to the amount received (or to be received,

that is, accounts receivable) for fish provided to consumers or individuals. In

addition some fish may be consumed by the household or retained as bait.

This is also included as a source of income.

2) Changes in the Inventory Value of Fish

Changes in fish income need to be assessed in order to determine the value

of gross income for the period. Fish in cold storage that have not as yet,

been sold and accrued income is also included and represents income not yet

received for products sold during the period.

3) Fishing Enterprise Variable Costs

Variable costs recap refer to costs that are

usually used up within a year. These include items

such as hired (temporal) labour, fuel, lubricants,

ice, bait, fish landing fees, and delivery or

transportation costs.

4) Changes in Inventory Value of Accrued Costs

Changes in inventory values of accrued

interest and payroll taxes charges must

be considered to determine total costs.

Accrued costs represent costs such as

taxes and machinery hire that are owed,

but not yet paid for.

Fishing supplies/purchases costs, include

inventories of fuel supplies, lubricants,

and ice. These are inputs purchased, but

not yet used in the current year of operations.

The inventory change in accrued interest costs must be added or

subtracted, from cash interest paid to obtain the total accrued interest

cost over the accounting period.

For changes in the production supply cost inventory values, the reverse is

true. If the production supply cost inventory value is greater at the

beginning of the period, the value is added to the enterprise cash costs. If

the inventory value is lower at the beginning of the period, the value is

subtracted from the fishing business cash costs.

Profit and loss statements measure the success of a fishing enterprise for a period of time in terms of net income or loss.

If the value of the accrued cost is less at the

beginning than at the end of the period, the

change in value is added to enterprise cash

costs.

If the value of accrued costs is greater at

the beginning than at the end of the period,

the value is subtracted from enterprise cash

costs.


5) Gain or Loss from Sale of Capital Assets

Income received from the sale of capital assets such as buildings, machinery

and equipment need to be taken into account in determining net income. The

gain or loss from the sale of capital assets is equal to the income minus the

salvage value of the capital assets.

A comparison of profit and loss statements for an enterprise throughout a

number of periods shows the growth or decline in profitability.

Net income averages for fishing businesses of similar size and type are

sometimes available for comparison. Comparing the average net income of

similar fishing enterprises provides some information for

evaluating the enterprise’s efficiency. Table 4.6 is an example of a

Profit and Loss Statement.

Exercise 8 – Calculating Net Income


TABLE 4.6 EXAMPLE OF A PROFIT AND LOSS STATEMENT

Fishing Receipts $ $

Cash Sales 280,627.00 Ending Frozen Fish Inventory 800.00 Begining Frozen Fish Inventory 1,200.00 Gross Income From Fish 280,227.00

Sales of Bait 500.00 Value of Fish Consumed at Home 200.00 Gains/Loss on Sale of Capital Items - Other Income - GROSS INCOME 280,927.00

Variable ExpensesFuel and Oil 144,000.00 Food Purchases 14,400.00 Purchases [Bait, Ice] 14,428.80 Transportation 7,200.00 Fish Landing Charges 14,831.00 Sundries 5,308.94

Total Cost of Fish Landed 200,168.74

GROSS MARGIN 80,458.26

Fixed ExpensesPayrol 48,000.00 Administrative Expense 3,240.00 Boat Repairs & Maintenance 3,600.00 Locker Room Rent & Mooring Fees 720.00 Interest 11,677.92 Social Security Payments 1,920.00 Depreciation 7,706.65 Vessel Insurance 3,000.00

Total Cost of Fixed Expenses 79,864.57

NET INCOME: Profit/(Loss) 593.69

4.8 INTRODUCTION - THE MEANING OF PROFIT


The starting point in understanding the profit and loss account is to be clear

about the meaning of "profit". Profit is the incentive for business; without profit

people wouldn't’ bother. Profit is the reward for taking risk; generally speaking

high risk = high reward (or loss if it goes wrong) and low risk = low reward. People

won’t take risks without reward. All business is risky (some more than others) so

no reward means no business. Fishing is a very risky business venture and all

efforts extended could result in loss; the loss of life or the entire investment is a

constant threat to all fishers.

Profit has an important role in allocating resources (labour, capital and

enterprise). Put simply, falling profits (as in a business coming to an end e.g.

Coastal fishing) signal that resources should be taken out of that business and put

into another one; rising profits signal that resources should be moved into this

business. Without these signals we are left to guess as to what is the best use of

society’s scarce resources.

The Task of Accounting - Measuring Profit

The main task of accounts, therefore, is to monitor and measure profits.

Profit = Revenue less Costs

Therefore, monitoring profit means monitoring and measuring revenue and costs.

There are two parts to this:-

1) Recording financial data. This is the ‘book-keeping’ part of accounting.

2) Measuring the result. This is the ‘financial’ part of accounting. If we say

‘profits are high’ this begs the question ‘high compared to what?’

Profits are ‘spent’ in three ways.

1) Retained for future investment and growth.

2) Returned to owners e.g. a ‘dividend’.

3) Remitted as tax.

IN T ER P R E TAT ION AND ANAL YS IS OF A C COUNT ING

IN FORMAT ION

Financial information is always prepared to satisfy in some way the needs of

various interested parties (the "users of accounts"). Stakeholders in the business

(whether they are internal or external) seek information to find out three

fundamental questions:

(1) How is the business doing?

(2) How is the operations placed at present?

(3) What are the future prospects of the business?


For outsiders, published financial accounts are an important source of information

to enable them to answer the above questions.

The Key Questions

To some degree or other, all interested parties will want to ask questions about

financial information which is likely to fall into one or other of the following

categories, and be about:

Performance Area Key Issues

Profitability Is the business making a profit? Is it enough?

Efficiency

Is the business making best use of its resources?

Is it generating adequate sales from its investment in

equipment and people? Is it managing its working capital

properly?

Liquidity Is the business able to meet its short-term obligations as they

fall due from cash resources immediately available to it?

Stability

What about the long-term prospects of the business?

Is the business generating sufficient resources to repay long-

term liabilities and re-invest in required new technology?

What is the overall structure of the businesses' finance - does

it place a burden on the business?

Investment Return

What return can investors or lender expect to get out of the

business?

How does this compare with similar, alternative investments in

other businesses?


Rationale

This Unit will examine the use of the cash flow in planning and as a tool for

evaluating the financial performance of the enterprise as a whole. The cash

flow guides decision makers in assessing whether the enterprise is able to

generate a cash surplus or incur a cash deficit and to find the time of the year

where additional financial resources may be required.

The unit reviews the concept of cash flow and discusses ideas for improving

cash flow performance.


SESSION 5.1 DEFINITION OF CASH FLOW

The concept of cash flow is simply the flow of money into the enterprise from

sales and the flow of money out of the enterprise in the form of purchases.

The difference between the inflows and the outflows is known as Net Cash

Flow.

For an enterprise to operate in the medium to long-term, it must generate a

positive cash flow. More cash must flow into than flow out of the enterprise.

SESSION 5.2 CASH FLOW ANALYSIS

A cash flow is a tool that has application for both ongoing analysis and forward

planning of enterprises. Cash transactions frequently occur. An important task

understand the importance of the cash flow in

planning and analysing the business

Learn cash management techniques & strategies

Analyse cash flows and prepare cash flow budgets

Net Cash Flow = Cash Inflows - Cash Outflows

MODULE III UNIT 5

CASH FLOW MANAGEMENT


of the fisher as manager is to control this flow of cash in and out of the

enterprise.

What is Liquidity?

Liquidity is the ability of the fisher to generate enough cash to meet financial

obligations as they come due without disrupting the normal operation of the

enterprise. The flow of funds in to and out of the enterprise is illustrated in

Figure 5.1.

Cash flows into the enterprise from various sources such as the sale of crops

and livestock, the sale of capital assets, mobilisation of loans and non-

enterprise income sources. Boat owners use this money to

cover their enterprise and family expenses. These include

such items as fishing trip costs, capital expenditures, loan

repayments and family living expenditures. A reserve of cash

or liquidity needs to be kept to prevent cash shortages from

disrupting the normal enterprise operations. Several factors can affect the

liquidity position of the enterprise:

The extraction cycle for all fishing enterprises is based on a typical fishing

trip, a few hours to a day. This means that fisher often have to make daily

payments for inputs (fuel purchases) used to sustain the operations.

Enterprise owners often find that it may be better not to sell fish directly

following harvest, but alternatively to store or add value for some time in

the search for higher prices. This, however, has an effect on the cash

reserve by delaying cash inflows from product sales.

Very often merchants involved in purchasing fish do not pay for it

immediately.

For many enterprises the availability of cash over the short term may even

be more important than generating additional profits. For example, fishers

may sell some of their productive assets, such as bait, stored fish, in order to

pay for fuel and oil. For these reasons fishers need access to working capital

and short tem credit. Flexible lending facilities are often desired that advance

cash as is needed during the production cycle and can be repaid when fish is

sold.

CASH INFLOWS


Sales of Fish and Fish products are the primary sources of cash for the

fishing enterprise and are critical to maintain the enterprise's liquidity

reserve. Some enterprises such as dairy cows generate a relatively even flow of

cash over the production year. Other enterprises such as fruit and livestock

(meat production) result in sporadic seasonal cash inflows over the production

period.

Figure 5.1 Enterprise Liquidity (Cash flow)

Other enterprise income sources sometimes constitute a substantial cash

inflow to the enterprise. A typical item includes income generated from work

performed for others.

Non-enterprise income sources include income from off-enterprise

employment, cash inflows from savings, interest earned on investments and

financial gifts.

Sales of capital assets are sporadic inflows of cash from the sale of land,

buildings, machinery, livestock and other capital items.

Borrowed money is also a source of cash, as shown in Figure 5.1 enters the

cash reserve from the side rather than the top as it is often considered a

source of cash used to maintain liquidity when cash outflows exceed inflows.

Borrowed money takes the form of short-term loans to cover operating costs

and longer term loans for the purchase of assets such as equipment, new

technology, and fleet improvement.

Fish & Fish Products sales Non-enterprise Income -

Borrowed money

Fishing Capital Loan

Family

Expenses Expenditures

Payments Living Expenses

Liquidity Reserve

Sale of

Capital Assets

Other enterprise

Income


CASH OUTFLOWS

Extraction costs constitute a relatively large draw on the liquidity reserve.

These costs include fuel, bait, food, hired labour, repairs and others. If an

owner fails to maintain a liquidity reserve to meet these costs, fish output

could immediately drop and the owner could end up paying a high level of

interest on borrowed money.

Capital expenditures include cash outlays for replacing or adding machinery and

equipment, breeding livestock, and purchasing land and buildings. These

expenditures are important for increasing and maintaining enterprise growth.

The cash outflows are sporadic but often involve large amounts of money.

Consequently, there is a need to ensure that the liquidity reserve is adequate

to meet these expenditures.

Loan payments on borrowed money can be made during times when cash inflow

from non-borrowed sources exceed cash outflow.

Family living expenditures are often overlooked in assessing the liquidity

reserve. Certain basic family living expenses must be covered because money

allocated to other uses in the enterprise sometimes find its way into the family

budget.

SESSION 5.3 PRACTICAL APPLICATION OF CASH FLOW

Fishers should be aware of the cash flow situation of the enterprise. This is

necessary to ensure that cash is available to cover expenses when needed. In

practice, cash flow can be used:

a) To monitor liquidity The cash flow records the timing and size of the cash

inflows and outflows that occur over a given period, normally one year. The

year is broken down into shorter periods of months or quarters.

A projected cash flow could be completed at the beginning of the year and

estimates made of the expected cash inflows and outflows over the period.

This is done to estimate the liquidity reserve or cash balance.

A cash flow of actual cash transactions could be recorded as they take place

over the year. The actual cash flow could be compared with the projected cash

flow as a way of monitoring the plan, devising solutions to problems, and taking

advantage of opportunities that occur.

b) For enterprise planning and management


The actual cash flow is compared with the projected cash flow to improve the

performance of the enterprise. The actual cash flow from one year can be

used to project the cash flow for the next year. In this way owners will know

that they have cash reserves available and will not be surprised by cash

shortfalls.

The following describes typical cash amounts kept as a management tool:

1. Transaction Amounts: We have to hold enough cash to cover our

outstanding payments or transactions. In addition to transaction amounts, we

should add any compensating balances required under loan agreements.

Therefore, the amount of cash on hand must be transaction amounts +

compensating balances.

2. Precautionary Amounts: We need to maintain cash for unexpected

disbursements. This is the precautionary amount of cash.The table below

illustrates situations where cash problems occur and provides solutions or

suggestions for improvement.

3. Speculative Amounts: If we are anticipating making an investment, we will

hold a speculative amount to take advantage of opportunities in the

marketplace.

4. Financial Amounts: In order to acquire assets, retire debt, or meet some

major event, we will accumulate and hold a financial amount of cash.

Projecting a cash flow is sometimes difficult. Fishing budgets are useful in

this, providing necessary information for projecting future cash flows. The

fisher should also anticipate the changes in fishing operations that are

expected to take place the coming year, such as the increase time at sea, new

captain, introduction of a FAD, or sales and purchases of capital assets.

c) To provide solutions to cash shortfalls

The cash flow has an important function of identifying cash shortfalls and

ways of addressing the problem. This might be done by borrowing additional

funds, mobilising savings or selling assets. (See Table on page 7)

Exercise – Cash Flow Exercise

Mary and Peter live in Scotshead, Dominica. Mary earns some money

from selling souvenirs, while Peter is a fisherman. They have a few

chickens and two goats. They also have three children attending


school. They would like to buy new furniture for the house this year, which will

cost EC $ 6,000 and they are wondering if they can afford it and when they

should make the purchase.

1. Peter expects to receive an income of $9,400 from selling fish broken

down over the year as follows: $400 - March, April and October,

$600 - February, May, September and November, $800 - January and

December, $1,200 - June and July & $1,800 - August

2. Mary usually gets money from souvenirs ($3,000) in the following

months: $300 – January & $900 - June, July and August

3. They often sell some small livestock and may get: $600 – January and

December

4. Peter needs money for boat and net maintenance: $200 - March, May

and July & $300 – November

5. Every month they need $ 500 to cover their living expenses.

6. They also need money for school expenses in the following months:

$300 – March, June, September and December

Trainees’ task:

Based on the information given above, trainees should prepare a cash flow

using the computer spread sheet and indicate if the family can afford to buy

new furniture and which is the appropriate month to make the purchase.

Answer sheet:

-1,600

-800

0

800

1,600

2,400

3,200

4,000

4,800

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Income

Expenses

Balance

The cumulative cash flow shows that in this example the family maintains a cash

flow surplus throughout the year. However, the period May to March is where

the cash surplus is at it lowest level. The enterprise owner would do well to

monitor and closely manage his or her cash situation over that period as a

cautionary measure.

Though my bottom line is BLACK, I am flat upon my back:


My cash flows out and my customers pay slow. The growth of my receivables is almost unbelievable;

The result is certain---unremitting woe! And I hear the banker utter an ominous low mutter,

“WATCH CASH FLOW!” Herbert S. Bailey, Jr.

SOLUTIONS TO CASH SHORTFALLS


CASH FLOW - PROBLEMS AND POSSIBLE SOLUTIONS

Problems Possible solution

Low Profitability

Cash flow problems may be a symptom of the problem of low profitability.

The first step would be to analyze profit and profitability of each single

enterprise. Increasing profit and profitability is often the best way to

remedy cash flow problems.

Unexpected cash problems

One way to prevent cash flow problems is to identify problems before they

occur. Cash flow would give the fisher time to alter his plans and remedy

the problems by timing cash inflows and cash outflows.

Low profitability together with low cash flow

This means a careful look at the combination of enterprises on the farm.

Perhaps value added fish product would increase cash inflow and allow for increase profitability at the same time.

High Extraction Costs

An effective way to improve cash flow is through cost control. Is the

Fuel purchases monitored? Is frequency of trips or the time at sea

appropriate? What can be done to reduce operating costs?

Need to increase selling Flexibility

The best approach to this problem is to improving marketing plans.

By value adding perishable products, the fisher has some flexibility in

timing sales. Improving farm profitability should be the main goal in

formulating a marketing plan.

Need to reduce cash Outflow

Leasing or renting instead of owning: the down payments and loan payments

associated with the purchase of land, buildings and equipment sometimes

put a heavy burden on cash flow.

Increase cash Availability

Taking an off-fishing job. One or both spouses could seek part-time or full-

time employment off fishing. Any additional expenses related to off-fishing

employment such as transportation, clothing and others need to be

considered carefully.

Assess the financial Package required

Estimate the financial package that the farmer requires when a cash

shortfall is identified. The cash flow enables the fisher to estimate the

size of loan required, the repayment capacity of the fisher and the

repayment schedule Refinancing: Cash flow problems are sometimes caused by a poor balance of

short- and long-term debts on the farm. Some fishers use short-term loans

to finance current and fixed assets. Operating loans should be used only to

purchase variable inputs. Liquidating assets: Selling assets is usually a drastic measure for dealing

with cash flow problems; however, it may be justified. Sell unprofitable

assets first (e.g. personal assets, timber, engines, unused equipment,

machinery, unproductive land, etc.),

Increase cash Availability

UNIT 6

PARTIAL BUDGETS AS A DECISION-MAKING TOOL


Rationale

Management is concerned with the ways in which the fisher obtains and

organizes scarce resources to achieve the goals set by the business or family.

Most decisions in a small fishing enterprise involve only one aspect of the entire

operations; it may be the need to upgrade the boat, adopt a new fishing

technology or choose between one technology, method, or technique over

another. Partial budgeting is a valuable instrument that assesses the effect of

marginal changes on overall profitability and enables the decision maker to

select between different.

This Unit examines the use of Partial Budgeting in planning as a tool to assess

the profitability associated with changes that effect only part of the business.


Understand and use partial

budgets as a tool to assess

the effects of marginal

changes involving several

options within the operations.

SESSION 6.1 THE USE OF PARTIAL BUDGETING IN

BUSINESS PLANNING

Many of the day-to-day decisions made by fishers are really an adjustment on

an existing plan that is being implemented over time. The decisions taken often

affect the revenue and costs of the fishing enterprise. Partial budgeting can be

used for example, to decide whether to purchase a specialised piece of fishing

equipment or, alternatively, to lease it from your local co-operative or the

dealer.

What is partial budgeting?

Partial budgeting is a planning tool used by fishers to estimate the effect of a

particular change on an activity within the operations. It examines only those

revenue and costs items that are affected by the proposed change. This

differs from a total budget that includes all income and cost items for the

entire operation. The partial budget examines the economic as well as non-

economic benefits and costs of any proposed change.


Non economic benefits could, for example, involve a reduction in time spent at

sea in relation to the size of the catch; that is increase effort or efficiency of

operations. In other words, partial budgeting is really “testing things out on

paper” before committing resources to a change in the current plan.

When is it useful?

Many changes that do not require a complete reorganization of the business can

frequently be identified. Fishers can employ the resources that they have in

more than a single way in response to changes in fish prices, market demand,

and the emergence of a new opportunity. Partial budgets are, therefore, useful

to evaluate changes such as:

expanding an existing operation,

selecting alternative methods/practices,

selecting different fishing techniques,

deciding whether to purchase equipment or to lease,

making a capital improvement, and

Either buying new equipment to replace hand labour or maintaining the older

equipment.

Partial budgeting is based on the principle that a small change in the organization

of an operation will have one or more of the following effects:

Eliminate or reduce some costs.

Eliminate or reduce some gross income.

Cause additional costs to be incurred.

Cause additional gross income to be received

An example of a partial budgeting form is provided below. It is important to

note that the categories on the left-hand side of the form are the two that

reduce profit – additional costs and reduced gross income. On the right-hand

side are the two that increase profit – additional gross income and reduced

costs. Entries on the two sides of the form are summed up and then compared

to find the net change in profit.

Exercise 6 – Partial Budget Calculation


SESSION 6.2 STEPS IN PREPARING A PARTIAL BUDGET

There are seven steps to be followed in preparing a partial budget. The

following example will be used to illustrate them:

Example: Fisher Peter invested in a large boat and has placed all his

focus on deep sea fishing for the past two years. He realize that his

range of caught species was too dependent on chance; on a number

of occasions catch yeild would be zero. As his third year of operations

approaches he is considering purchasing a brand new fish finder/GPS

system with the hope of improving the predictability and consistency of his

catch and to place more emphasis on port fishing.

The present situation “without fish finder/GPS” is as follows.

1. Total Fish Sales Revenue = EC $318,177.09, Gross Margin = EC

$113,852.11;

2. 50 Fish ports were placed in an area of approximately 6 miles diameter;

3. On recommendations of the Fisheries Division five days per week was

spent at sea and fuel and lubricants accounted for 46.62% of the cost

of fish sold;

Partial Budgeting Form

Problem:

Added Annual Costs: EC $ Added Annual Gross Income: EC $

Reduced Annual Gross Income: Reduced Annual Costs:

A. Total Additional Costs B. Total Additional Gross Income

& Reduced Gross Income & Reduced Costs

Net Change in Profit (B minus A)


4. At least on three occasions per annum the vessel drifted due to

mechanical failure and the coast guard could not respond;

5. The major costs were as follows:

Gross Margin Statement Current

Revenue

Fish Sales 318,177.09

Total Revenue 318,177.09

Less Cost of Fish Sold

Fuel and Oil 148,348.80

Food Purchases 14,981.76

Purchases [Bait, Ice] 18,526.58

Transportation 7,490.88

Fish Landing Charges 6,729.97

Sundries 8,246.99

Total Cost of Fish Sold 204,324.98

Gross Margin 113,852.11

How should the fisher proceed in this exercise?

Step 1 - State the Proposed Change

The first step is to write down the proposed change to the fishing operation;

in this case, it is the introduction of a fish finder/GPS system.

Step 2 - List the Added Annual Gross Income

The second step is to list the additional gross income of the proposed change.

In this case, fish finder/GPS System will improve the location of his FADs,

ports, and pelagic fishing grounds. It is anticipated that the change would

increase by 3,000 lb of pelagic species or $13,500 (3,000 lb @ $4.50), 4,300

lb of Lobsters or $23,000 (2,300 lb @ $10.00), and 1,500 lb of port fishes or

$825 (1,500 lb @ $5.50) annually, with total added gross income of EC

$44,750.

Step 3 - List the Reduced Annual Costs

The third step is to list the reduced annual costs. In this case, the

introduction of the equipment would improve the efficiency of locating fishing

grounds and reduce the time spent identifying and recognizing harvestable fish

ports. This resulted in a slight reduction of fuel usage by 2% or EC $2,966.98

Step 4 - List the Added Annual Costs

The fourth step is to list the expected additional annual costs. In this example

they include extra landing charges at EC $0.10 per lb for the net additional

catch, the need for more ice and bait and food and the increased costs

associated with transportation and incidentals /sundries. The fisher must hire


a part-time staff responsible for data collection and record keeping or pay the

equal amounts of approximately EC $500 per month for the service to the

local fisheries co-op.

Step 5 - List the Reduced Annual Gross Income

The fifth step is to identify any gross income that has been reduced as a

result of the change. In this example, there was loss in revenues associated

with the sale of Red Fish which weight less than 3 lbs (1,300 lbs) and Tuna less

than 15 lbs (1,450 lbs). Annual reduced sales income of EC $13,675.

Step 6 - Estimate the Change in Annual Income

The sixth step is to summarize the effect on income. In the above example,

the net income would increase by EC $22,575.02 due to the introduction of

the fish finder/GPS technology.

Step 7 - Non-economic Considerations

The final and seventh step is to look at the non-economic factors of the

change, such as ecological, operating, and social aspects such as fishing

resource conservation, improvement in the overall effort, increased flexibility

in the fishing cycle, improve quality of life of the fishers’ family etc.

The following are directly associated with the change:

Overfishing Control: the new system has increased the level of monitoring and

regulation of the fishing sites that caused a significant reduction in by-catch

species and more discriminatory extraction in the fish ports. The use of the

drag net was also eliminated.

Safety: Safety at sea was improved significantly with the introduction of the

GPS system; the vessel location could be tracked in real time allowing for

improvements of surveillance and response by the coast guard and Fisheries

Division. Overall operations risks were reduced significantly allowing for

negotiation in the reduction in insurance premium at First Domestic.

Quality Assurance: The fisher was able to improve the quality and safety

of the fish as food by introducing a traceability programme which allow for

useful record keeping of the date and location of harvest and to track a

particular catch in the event of any food related scare. This programme

resulted in a sales contract with a major hotelier such as Rosalie Bay.

In this example, in deciding whether to introduce the new technology, the

fisher would look at the economics of the decision. This is the increase in the


gross income by EC $22,575.02 and the increase in gross margin of EC

$22,575.02 ($ 136,427.13 - $ 113,852.11). The fisher could then take into

account the non-economic effects of irrigation before making the decision

whether or not to purchase.

Completed Partial Budget Form for the Example

ADDED COSTS: EC $ ADDED GROSS INCOME: EC $

Food Purchases 1,463.20 Pelagic Sales (3,000 lbs @ $4.50/lb)

13,500.00

Purchases [Bait, Ice] 1,809.41 Lobster Sales (2,300 lb @ $10.00/lb)

23,000.00

Transportation 731.60 Port Fish Sales (1,500 lb @ $5.5/lb)

8,250.00

Fish Landing Charges 657.29

Sundries 805.45

Record Keeping Services 6,000.00

REDUCED GROSS INCOME: REDUCED COSTS:

Tuna Sales (1,450 lbs @ $4.5/lb)

6,525.00 Fuel and Lubricants 2,966.98

Red Fish Sales (1,300 lbs @ $5.5/lbs)

7,150.00

A. Total Additional Costs & Reduced Gross Income

25,141.96 B. Total Additional Gross Income & Reduced Costs

47,716.98

22,575.02 25,141.96 -

Net Change in Profit (B minus A) 22,575.02 CHANGE SUMMARY

Before: "Without Fish Finder/GPS" After: " With Fish Finder /GPS"

TOTAL GROSS INCOME 318,177 TOTAL GROSS INCOME 349,252

TOTAL COSTS 204,325 TOTAL COSTS 212,825

GROSS MARGIN 113,852 GROSS MARGIN 136,427

A partial budget can be used by a fisher to work out how a proposed change will

affect the business. This is done by listing the factors affecting the change. It

allows fishers to make sound financial decisions about the future of their

operations.


Rationale

This Unit emphasizes the function of management to control the operations.

The key management tools presented in the previous Unit will be applied in this

Unit to analyse the performance of the fishing activities.


Identify essential performance

measures and understand the

sequence of business

performance analysis.

Understand benchmarking as a

practice to identify fishers who are the best at fishing and learning from

them how best to manage their fishing operations.

SESSION 7.1 SEQUENCE FOR UNDERTAKING PERFORMANCE

ANALYSIS

Fishing performance analysis indicates if the enterprise is functioning as it

should. Analysis of performance can be used to identify why certain operations

are more profitable than others.

Data needs to be collected that accurately reflects the performance of the

enterprise and a set of standards should be selected for measurement. The

extension worker/fisheries officer must decide how the enterprise

performance analysis should be conducted.

If enterprise performance is unsatisfactory, the officer should assist the

fisher to make adjustments to the fishing activities in a way that results in

improved performance.

Fishing performance analysis should be conducted periodically. Performance

indicators can draw on data collected over time from a particular fisher or

from others located in the area.

UNIT 7

FISHING PERFORMANCE MEASUREMENT


The following indicates the basic steps that the extension worker in

collaboration with the fisher would be required to undertake in conducting a

performance analysis.

1. Identify key performance measures

2. Evaluate key performance measures by comparing with similar operations

3. Identify the best performance for each key performance measure

4. Identify the production and/or marketing practices that result in best performance

5. Assess the transferability of the best practices to the particular operations

6. Investigate the potential benefits and the implications in applying best practices

7. Implement the practices and monitor their performance

a) Identify Key Performance Measures

This step calls for identifying key performance measures that reflect

performance. Practical examples of such indicators are:

Market related measures: Final market price achieved; Marketing expenses paid, Cost per lb of fish

landed; Price achieved net of marketing costs

Fishing related measures: Catch per gallon of fuel; Regular labour costs; Catch per unit effort; Quality of

harvested fish

b) Evaluate key performance measures by comparison with other similar

fishers in the area

The most import factor for performance analysis is to obtain comparative

information. Comparative information might be available from:

survey data

management information publications

extension/fisheries division services

fishers’ associations/co-operatives.

c) Identify the best cases for each key performance measure


This is usually a matter of comparing the performance of a particular fisher

with that achieved by other fishers or by a group of fishers. It is likely that

performance is measured in terms of:

overall profitability

gross margin performance of the enterprise

catch levels and selling prices

the quantities of variable inputs used

total fixed costs

physical and financial performance measures relevant to the operations

or to groups of fishers’ operations

d) Identify fishing or marketing practices resulting in best performance

Agricultural business analysis can be used to identify the indicators and

their associated values in comparison with best in class cases. The

information collected would serve as a preliminary stage of a more in depth

investigation.

In particular, extension workers and fisheries officers could organise

meetings for fishers where discussions could be held to identify the root

causes of their performance success and failures. These factors could be

traced to either fishing or marketing practices, all of which should be

discussed at the meetings. This allows fishers who have been identified as

achieving high performance in particular areas to explain to the rest of the

group how this performance was achieved.

e) Assess the transferability of the best practices to the particular

operations

Analysis of the various key performance measures identified should suggest

the extent to which the experience can be transferred. The reasons

preventing the transference of relevant techniques may be, for example,

unavailability of training, insufficient financing to procure supporting

technology or equipments or a lack of required skills.

f) Investigate the potential benefits and implications of using the best

practices

Having identified the best available marketing and fishing practices, an

assessment of the pros and cons in their implementation should be

conducted.

g) Implement the practices and monitor their performance

Once the techniques are assessed they should be transferred and

implemented. The next step is to monitor the performance of the relevant


enterprises to ensure that the changes improve performance in line with

expectations.

SESSION 7.2 BENCHMARKING

Benchmarking is the practice of identifying those fishers who are the best at

fishing and learning from them how best to manage their operations.

Financial benchmarks involve looking at actual performance data from fishers

that can be used for comparative purposes. By monitoring and comparing a

specific fisher’s performance to benchmark data is helpful to identify key

areas that will improve profitability.

Technical benchmarks are information that helps fishers in defining a

benchmark for a particular input, such as a maximum of 40% of fuel cost to

total costs. Benchmarks are not a blueprint, but a guide to help fishers to

position themselves with regard to their inputs. If fishing inputs are very

different from the benchmark, corrective actions should be taken by the

fisher. Examples of benchmarks are:

Catch per Unit Effort (CPUE); Long-line fishing techniques; Catch Data

Market Price and Fish Quality and Traceability; Fishing Harvesting Costs

Fisheries officers should be able to find benchmarks for different categories

of fishers (large/ small, specialised/ mixed, full-time /part-time etc.). There

are different ways of setting performance standards or benchmarks but the

most common method is by analysing actual performance data for a large

number of fishers and categorising them as “weak”, “average” and “better”

performing. Another set of average data could be calculated for each sub

group.

Example of form for catch benchmark

Landing Site: Catch Range lb/day

Lower Medium Upper


SESSION 7.3 ANALYSING OVERALL PERFORMANCE

Having defined technical and financial benchmarks for different categories of

enterprises, the next step would be to analyse the overall performance.

A complete analysis of the whole business can be time-consuming. However,

using a systematic procedure to identify the sources of a problem can eliminate

several steps in the process. This Session will illustrate a simple procedure to

reduce the number of necessary steps to take in assessing performance. The

procedure used to diagnose profitability is schematically shown below.

Figure 7.2 - Procedure for Diagnosing Profitability Problem

Profitability: if unsatisfactory, check economic efficiency ( gross margin, profit, cash flow)

Economic Efficiency: if too low check value of inputs, product prices

Technical Efficiency: if too low check fishing techniques, quality of inputs & technology, etc.

Value of Input Value of Catch

PROFITABILITY

ECONOMIC EFFICIENCY

TECHNICAL EFFICIENCY

Product Prices Cost of Input Level of Input Level of Output

Liquidity Solvency


The procedure begins by investigating fishing operation’s profitability.

Profitability is analyzed by comparing income and costs. Profitability is a

measure of how efficient the business is in using the resources available to

generate income. If an income or profitability problem is found, operations size

should be analysed to see whether there are enough resources available to

generate profit. Measures such as gross income or volume of catch sold could

be compared to that of other fishers.

If the fish catch level is too low, there may not be enough resources employed.

Ways should be sought to expand fishing area, increase labour supply, or obtain

more capital. If size cannot be increased, then fixed costs such as boat and

engine depreciation, interest, and general overhead costs should be carefully

evaluated. Steps should be taken to reduce those costs that have the least

effect on the level of fishing. None fishing employment may also be considered

as a way to improve business income.

If adequate resources are available but the fish catch level is low, fishing

resources are not being used efficiently. Low efficiency could be due to low

selling prices, or high input costs. Efficiency can be measured in two ways:

economic and technical efficiency.

Economic efficiency can be improved by increasing the price of products and

reducing the cost of inputs. This can be done by seeking better market outlets,

searching for low cost suppliers, and substituting organic inputs for purchased

inputs. Finally, paying higher than necessary for fuel, ice, repairs, and even

credit (high interest) can result in low economic efficiency.

Technical efficiency is a way to measuring the management practices.

Efficiency can often be improved by obtaining higher quality inputs or volume

of outputs. If enterprise profitability is low and technical efficiency cannot be

improved, a conclusion that might be drawn is that the wrong enterprises might

be kept. Alternatively, if the technical efficiency measures are found to be

satisfactory, another explanation for low profitability might be the receipt of

below-average selling prices. Further investigation might discover that this

could be the result of low prices cycles, poor marketing practices, or inferior

product quality. Alternative marketing outlets and marketing tools should then

be considered.

The following measures are often useful in assessing the performance of the

enterprises:


the level of catch and prices achieved

the quantities of variable inputs used

total fixed costs

the various physical and financial performance measures identified as

relevant to the fisher or to the group of fishers

By using these measures, the extension worker could help the fisher assess

his/her current financial position.

Profitable fishers also need to be concerned about liquidity and solvency. If

the cash flow situation seems to be tight even when a satisfactory net income

can be earned, the fisher may choose to refinance current debt, slow down

expansion of an enterprise, sell some assets, and try to reduce working capital

needs. If the fisher is not satisfied with the level of solvency on the

operations, they may retain more of the net income generated each year or

alternatively, sell assets to reduce debt levels.


REFERENCES

Abbott, J.C, & Makeham J.P., Agricultural Economics and Marketing in the Tropics. 2nd Ed. Longman. Essex, UK. 1990. Pp. 84-149 AusAID. 2009. Better management practices for striped catfish (tra catfish) farming in the Mekong Delta, Viet Nam. Prepared under the AusAID Funded Project, Development of Better Management Practices for Catfish Aquaculture in the Mekong Delta, Viet Nam (001/07VIE), by Project Partners. (Unpublished) Bernet T., Thiele G. and Zschocke T., 2006. Participatory Market Chain Approach (PMCA) – User Guide. International Potato Center (CIP) – Papa Andina, Lima, Peru. Brigham, Eugene F. & Ehrhardt, Michael C. Financial Management: Theory and Practice 10th Ed. Thompson Learning Inc. Melbourne. 2002, pp. 30-112 Central Statistical Office. Ministry of Finance. 2005. Annual Report on External Trade. Roseau, Dominica Central Statistical Office. Ministry of Finance. 2009. Agricultural Report. Roseau, Dominica Central Statistical Office. Ministry of Finance. 2004. Consumer Price Indices. Roseau, Dominica Chirwa, E., Dorward, A., Kachule, R., Kumwenda, I., Kydd, J., Poole, N., Poulton, C., & Stockbridge, M. 2005. Farmer organisations for market access: principles for policy and practice. London, Department of Agricultural Sciences, Imperial College. Collion, M. & Rondot, P. 2001. Investing in rural producer organisations for sustainable agriculture. Washington, DC, World Bank. De Veld, A. 2004. Marketing for small-scale producers. Wageningen, Agromisa Foundation. (Available at http://journeytoforever.org/farm_library/AD26.pdf). Doane Information Services. 1977. Facts and Figures for Farmers. St. Louis, MO

http://journeytoforever.org/farm_library/AD26.pdf


FAO. 2011. Fisheries management. 4. Marine protected areas and fisheries. FAO Technical Guidelines for Responsible Fisheries No. 4, Suppl. 4. Rome. 199 pp. FAO. 2001. The inter-group resource book: a guide to building small farmer group associations and networks. Rome. Ferreira, B.P. & Maida, M. 2007. Characteristics and perspectives for fishery management in the Coral Coast Marine Protected Area. In: Prates & Blanc, 2007, pp. 39–50. Fisheries Division. Fisheries Industry Census of Dominica. 2008. Roseau, Dominica. Khan, T. 2007. Membership-based organizations as a reflection of power structures in rural “community”: experiences and observations from Sindh Province, Pakistan. In M.A. Chen, R. Jhabvala, R. Kanbur & C. Richards, eds. 2007. Membership-based organizations of the poor: concepts, experience and policy. Oxon, UK, Routledge. Lippke, L. A., Ladewig, H.W., & Taylor-Powell, E. 1987. National Assessment of Extension Officers to Increase Farm Profitability through Integrated Programs. College Station, TX: Agricultural Extension Services Ministry of Finance. 2010. Economic and Social Review for the Fiscal Year 2009-2010. Roseau, Dominica. NACA. 2009. Project report: small-scale shrimp producer environmental standard assessment. Bangkok, WWF and Network of Aquaculture Centres in Asia-Pacific. (Unpublished) Sanders, J.S.; Gréboval, D.; Hjort, A. (comp.) Marine protected areas: country case studies on policy, governance and institutional issues. FAO Fisheries and Aquaculture Technical Paper. No. 556/1. Rome, FAO. 2011. 118 pp. Umesh, N.R., Chandhra Mohan, A.B., Ravibabu, G., Padiyar, P.A., Phillips, M.J., Mohan, C.V. & Vishnu Bhat, B. 2009. Shrimp farmers in India: empowering small-scale farmers through a cluster-based approach. In S.S. De Silva & F.B. Davy, eds. Success stories in Asian aquaculture, pp. 4–68. Bangkok, NACA.

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