Transcript Slide 1

Farm Business Planning
and Management
Our goal?
 To help you improve the management of your
business through business planning.
Introduce some management tools
 Record-keeping alternatives
 Trend analysis
Three year income and expense summary
 Calculating cost of production for enterprises
 Damona’s 30 + 1 plan
Can You Answer These Questions?
 Is the business headed in the right direction?
 Does it provide enough income to:
Show a profit?
Cover your loan payments?
Pay family living expenses?
 What are your production costs?
 What price do you need to receive for your
product to break even?
Strategic Plan Component
Personal Vision,
Mission, Goals
Internal Scanning
Family Vision,
Mission, Goals
Business Vision,
Mission, Goals
Strategic Plan
External Scanning
Strategy
Finance
Personnel
Business
Plan
Operations
Marketing
Percent of group total
Producers having a long-term
business plan***
100
90
80
70
60
50
40
30
20
10
0
61.3
42.9
38.7
Yes
No
Smaller producers
OSU
57.1
Yes
Larger producers
No
Components of a business plan
 History and general description
 Mission or vision statement
 Goals and objectives
 Key planning assumptions
 Market analysis
 Marketing plan
 Operations
 Organization and management
 Financial plan
Key Planning Assumptions
 List the family and ranch resources – land, labor,
financial capital, other capital assets, management
 Identify planning restrictions and constraints
 Name expected products or services
 Identify market outlets
Operations, Organization,
and Management
 Define each individual’s role in the
business
 Develop an organizational chart for large
operations
Small may not be simple!
Dan
or
Nancy
or
Dan
Nancy
Dan
Nancy
Operations, Organization,
and Management
 Identify most appropriate legal
arrangement: sole proprietorship,
partnership, corporation, etc.
 Develop plans for allocation of profits
The Financial Plan
 Initial financial requirements
 Historical and projected financial
statements
 Enterprise analysis
 Risk assessment
 Break-even analysis
How would you rate your current
record-keeping system?
 Good?
 Bad?
 Ugly?
Percent of group total
Producers’ financial recordkeeping systems**
100
90
80
70
60
50
40
30
20
10
0
49.4
41.9
26.6
31.5
18.5
Minimal
Ledger
Computer
Smaller producers
OSU
32.1
Minimal
Ledger
Larger producers
Computer
Why keep records?
 Provide facts about the business
 Include both financial and production
records
 Measure business performance
 Allow producers to meet legal
obligations, support loan applications,
and arrange for insurance coverage
Historical assessment
 Three year trend worksheet
Record-Keeping Alternatives
 Computerized Records
Software is not expensive
Easy to keep
Easy to generate reports
 Hand Records
Don’t have to learn to use software
Very low cost
Difficult to sort and summarize
Why Quicken?
 A popular personal financial records software
package
 Inexpensive
 User-friendly
 Flexible
Quicken’s shortcomings for
agricultural producers
 Not built to keep production records
 No separate physical data field (can use memo)
 Cash accounting (not double entry, no
depreciation records)
 No payroll or invoicing features in basic version
Quicken features
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Accounts
Budgeting
Loan tracking
Tax planning
Reports and graphs
Online banking, bill payment, investment features
Quicken
Reports
Financial Planning
Features
 Cash flow
 Tax schedule
 Transactions
 Account balances
 Comparison
 Balance sheet
 Budgets
 Reconciliation
 Loans
 Savings
 College
 Retirement
 Refinance
Financial Records Needed
 Inventory of assets and liabilities
 Transaction journal of income and expenses
 Copies of tax returns filed
 Employment records
How Long to Keep Records
 Cancelled checks:
At least 6 years (consider keeping longer)
 Investment records:
6 years after tax deadline for the year of sale
 Loan agreements:
Until updated
 Receipt for large purchases:
Until item is sold or discarded
 Tax returns:
6 years from the filing date
Enterprise Analysis
 With income and expenses sorted into
enterprises, analysis is easy.
 Profit and loss centers are now visible.
 Might find out that it is cheaper to buy hay
than it is to bale your own.
Calculating Cost of Production
 Identify enterprises
Cow-calf
Stocker
Breeding bulls
Native pasture
Improved pasture
Custom work
Horses
Calculating Cost of Production
 Identify enterprises
 Allocate cash expenses
 Identify non-cash expenses
 Allocate non-cash expenses
 Add them up!
Calculating Cost of Production
 Allocate cash expenses
Identify most appropriate method to match
expenses with an enterprise.
 Number of bales of each type of hay to divide out baling
expenses.
 Number of acres of each crop with the application rate to
allocate fertilizer costs.
 Number of times over field by crop to allocate tractor
expenses
Calculating Cost of Production
 Identify non-cash expenses
Accrual adjustments
 Account for changes in beginning and ending
inventories.
 Pre-paid expenses, supplies, accounts payable, ad
valorem taxes, employee payroll withholding taxes,
accrued interest, loan balances
Need to have a balance sheet
 List of items that are owned and owed.
IFMAPS
 A free, confidential service assisting
Oklahoma farmers and ranchers with financial
planning since 1985
 Trained financial specialists work with families
one-on-one to develop financial statements
and evaluate alternative plans
 Contact the local Extension office, an area
Agricultural Economics specialist, or call the
IFMAPS office in Stillwater at 1-800-522-3755
Damona’s 30+1 plan
 Spend 30 minutes each week maintaining
records
 Take one step each month to improve your
record-keeping system
Monthly items
 Update your will
 Specify medical directives
 Update life insurance beneficiaries
 Update beneficiaries on retirement accounts
 Have a durable power of attorney in place
 Check depreciation schedule for accuracy
 Develop and/or update farm asset list
 Develop and/or update household asset list
 Develop a list of account numbers and contacts
Monthly items
 Take photographs or video of assets and
place in safe deposit box
 Notify family members of location of
important papers
 Relax and enjoy peace of mind knowing that
your family is prepared for emergencies!
Using the Business Plan
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Distribute copies to those involved in business
Review plan periodically
Monitor progress, meet with planning team
Keep records
Compare actual outcomes to projected outcomes
Make changes to plan as needed
Just do it!
References:
 OSU Ag Econ Department,
http://agecon.okstate.edu/websites.asp
 OSU Extension publications, www.osuextra.com
 National Ag Risk Management Library,
http://www.agrisk.umn.edu/
 Annie’s Project,
http://www.extension.iastate.edu/feci/annie/
 Business Planning Guidebook, Minnesota Institute
for Sustainable Agriculture,
http://www.misa.umn.edu/vd/bizplan.html
 FINPACK Business Planning Software,
http://www.cffm.umn.edu/Software/BusinessPlan/