2015 session 2 finance and planning - uvm...
TRANSCRIPT
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Session 2: Business Planning and
Farm Finance Introduction
UVM Farmer Training Program
Mark CannellaFarm Business Management Specialist
[email protected] 802-223-2389 UVM Extension Farm Viability
Last Time
• Values
• Start Up Decisions and Check List
• SMART Goals
• SWOT
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Today
• Farm Business Plan Overview
• The financial plan– Financial Goals
– Balance Sheet
– Cash Flow
SWOT Analysis
• Internal: Strengths and Weaknesses
InternalAnimal Husbandry
Secured Land Base
New Equipment
Limited Cash
Unreliable Staff
Bad Credit Score
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External: Opportunities and Threats
Capitalize or
Mediate?
Rain During Haying
Animal ID Regulations
Diseases, Bio Security
Food Safety Recall
Strong Local Demand
Adjacent Property for
Rent
• Sample SWOT
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The Assignment
• Develop an enterprise plan for an element of a future business. The plan must include a budget and one of the following analyses for this element of the business:
– Market analysis
– SWOT Analysis
– Production Analysis (systems, methods and technology)
– Management Analysis (HR plan, Job Descriptions)
– Risk Management Plan
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Plan/Goal
Land
Equipment
Labor
Product
Markets
Business Plan Basics
• Reasons to write a plan– a “feasibility” plan beforehand
– To fine tune an existing business
– To justify new investments or strategies
• Who is the audience?– Internal plan to guide management
– External plan (lenders,investors,others)
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Business Plan Elements
• Executive Summary
• Farm Description
• Products and Markets Description
• Analysis:– SWOT
– Management and Operations
– Market
• Financial Information– Net Worth
– Gross Sales
– Return on Assets
– Net Income
• Planning
- Goals and Strategies
- Implementation Plan
• Supporting Documents
- Financial Statements: (Balance Sheet, Income Statements, Cash Flow)
- Technical Assistance Reports
- Farm Maps/Soil Maps
- Pictures
- Other
Financial Statements
• Balance Sheet
• Cash Flow Statement
• Income Statement or Profit and Loss
• Derived from your accounting system/records
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What is the Point?
• Am I generating wealth for my future?
• Can I access credit to buy the farm?
• Do I have money to purchase garlic seed this fall?
• Can I pull cash out for family living?
• Is garlic farming profitable?
The Skills You Need• Addition, Subtraction, Multiplication, Division
What you really need
• Time and System to RECORD
• Commitment to REVIEW
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Financial Goals
• Increased Equity and Net Worth
• Cash generation for owner draw (your paycheck)
• Profitability: Covering all costs and generating a positive return on capital investments.
Equity or Net Worth• Assets – Liability = Equity
• Generating wealth over time through increasing ownership of assets
• Can help access capital through borrowing
• Can be liquidated (converted to cash) through a sale
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Equity Looks Like
Balance Sheet
• A snapshot of the farm worth at a single point in time. Successive balance sheets need to be completed over time to analyze trends.
On a balance sheet:
• Inventories and their value
• Assets Value: Items with a useful life over 1 year
• Liabilities: Obligations to be paid back
• Net Worth = Assets minus Liabilities
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Balance Sheet• Current Term Asset: sold or used up in the next 12 months
cash on hand, accounts receivable, feed inventory, marketable livestock
• Intermediate Term Asset: useful life from 1-10 yearsmachinery, breeding livestock, equipment
• Long Term Asset: useful life of 10+ years
land, buildings, improvements
• Current Liability: needs to paid off in the next 12 months
• Intermediate Liability: Paid off in 1-10 years
• Long Term Liability: Paid off in over 10 years
Samples
• Equipment Inventory
• Balance Sheet Sample
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Cash Flow
• The Purpose: to maintain sufficient cash on hand so you can pay bills as they come due– Will you need to borrow, when?
– How much can you draw for salary?
– Unplanned opportunities or problems
Cash Flow Statements
The focus is on transactions
Cash Flow Statement: summarizes all cash in-flows and cash out-flows over a specific time
Cash Flow Budget/Projection:
Forecasts cash activity for a future time period.
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Clues to Improved Management
- Find the major expenses
- Identify where the income comes from
- Measure how much the business supports the livelihood of owners
- What else can you find?
Expense Categories
• Variable Expenses: Expenses that go up or down in relation to changes in production level.
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Expense Categories
• Fixed Expenses: Expenses that hold steady even if the business produces more or less goods
Expense Categories
• Capital Expenses: A special category for the purchase of items or improvements that have a useful life more than one year. These items can often be re-sold (ie. used drip tape cannot)
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Cash Flow #1
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Capital Activity+ Capital Inflows +
• Sale of Farm Assets
• Contributions from Savings
• New Loans/Borrowing
- Capital Expenses -
• Purchase of Equipment and Real Estate
• Loan Payments
• Cash Draw to Owners
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Samples
- What are the major expenses
- Where does the income come from
- How does this business support the livelihood of owners
- What else can you find?
The Five C’s of Credit
CHARACTER – Credit History, knowledge, experience
CAPITAL - Financial position, equity, cash
CAPACITY – Repayment ability and borrowing capacity
COLLATERAL – Lender’s security
CONDITIONS – Of the economy, the industry
32Intro to Ag Fin Mgt, UVM Ext, Feb 2015
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Loans
• Loan Schedule:– Interest Rate
– Periods (# of months)
– Borrowed Amount
• Try a loan calculator online
Readings
• MF 275 Kansas State Farm MgmtGuide: Cash Flow
• MF 291 Kansas State Farm MgmtGuide: Balance Sheet
• Building a Sustainable Business: Task 4: pp 103-175
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Next Time
• Market Research
• Setting Prices
• Product Development
• Promotion and Sales