farm business planning and management

Farm Business Planning and Management

Our goal?

To help you improve the management of your business through business planning.

Introduce some management toolsRecord-keeping alternativesTrend analysis

Three year income and expense summaryCalculating cost of production for enterprisesDamona’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 ComponentPersonal Vision,Mission, Goals

Family Vision,Mission, Goals

Business Vision,Mission, Goals

External ScanningInternal Scanning

Strategic Plan

Finance

Operations Marketing

Personnel

Strategy

BusinessPlan

Producers having a long-term business plan***

38.7

61.3 57.1

42.9

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Yes No Yes No

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OSU

Components of a business planHistory and general descriptionMission or vision statementGoals and objectivesKey planning assumptionsMarket analysisMarketing planOperationsOrganization and managementFinancial 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 ManagementDefine each individual’s role in the

businessDevelop an organizational chart for large

operations

Small may not be simple!

Nancy

Nancy

Dan Nancy

Dan orDan

or

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 requirementsHistorical and projected financial

statementsEnterprise analysisRisk assessmentBreak-even analysis

How would you rate your current record-keeping system?Good? Bad?Ugly?

Producers’ financial record-keeping systems**

41.9

26.6 31.5 32.1

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Minimal Ledger Computer Minimal Ledger Computer

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Why keep records?

Provide facts about the business Include both financial and production

recordsMeasure business performanceAllow producers to meet legal

obligations, support loan applications, and arrange for insurance coverage

Historical assessmentThree year trend worksheet

Record-Keeping AlternativesComputerized Records

Software is not expensiveEasy to keepEasy to generate reports

Hand RecordsDon’t have to learn to use softwareVery low costDifficult 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

Accounts Budgeting Loan tracking Tax planning Reports and graphs Online banking, bill payment, investment features

QuickenReports Cash flow Tax schedule Transactions Account balances Comparison Balance sheet

Financial Planning

Features Budgets Reconciliation Loans Savings College Retirement Refinance

Financial Records Needed Inventory of assets and liabilitiesTransaction journal of income and expensesCopies of tax returns filedEmployment records

How Long to Keep RecordsCancelled checks:

At least 6 years (consider keeping longer) Investment records:

6 years after tax deadline for the year of saleLoan agreements:

Until updatedReceipt for large purchases:

Until item is sold or discardedTax returns:

6 years from the filing date

Enterprise AnalysisWith 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-calfStockerBreeding bullsNative pasture Improved pastureCustom workHorses

Calculating Cost of Production Identify enterprisesAllocate cash expenses Identify non-cash expensesAllocate non-cash expensesAdd them up!

Calculating Cost of ProductionAllocate 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 planSpend 30 minutes each week maintaining

recordsTake 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 itemsTake photographs or video of assets and

place in safe deposit boxNotify family members of location of

important papersRelax and enjoy peace of mind knowing that

your family is prepared for emergencies!

Using the Business Plan

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/