farm business planning and management
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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 - PowerPoint PPT PresentationTRANSCRIPT
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Farm Business Planning and Management
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Our goal?
To help you improve the management of your business through business planning.
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Introduce some management toolsRecord-keeping alternativesTrend analysis
Three year income and expense summary
Calculating cost of production for enterprisesDamona’s 30 + 1 plan
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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?
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Strategic Plan Component
Personal Vision,Mission, Goals
Family Vision,Mission, Goals
Business Vision,Mission, Goals
External ScanningInternal Scanning
Strategic Plan
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Finance
Operations Marketing
Personnel
Strategy
BusinessPlan
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Producers having a long-term business plan***
38.7
61.3 57.1
42.9
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100
Yes No Yes No
Per
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t of
gro
up
tot
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Smaller producers Larger producers
OSU
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Components of a business planHistory and general descriptionMission or vision statementGoals and objectivesKey planning assumptionsMarket analysisMarketing planOperationsOrganization and managementFinancial plan
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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
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Operations, Organization, and ManagementDefine each individual’s role in the
businessDevelop an organizational chart for large
operations
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Small may not be simple!
Nancy
Nancy
Dan Nancy
Danor
Danor
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Operations, Organization, and Management Identify most appropriate legal
arrangement: sole proprietorship, partnership, corporation, etc.
Develop plans for allocation of profits
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The Financial Plan
Initial financial requirementsHistorical and projected financial
statementsEnterprise analysisRisk assessmentBreak-even analysis
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How would you rate your current record-keeping system?Good? Bad?Ugly?
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Producers’ financial record-keeping systems**
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26.631.5 32.1
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Minimal Ledger Computer Minimal Ledger Computer
Per
cen
t of
gro
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tot
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Smaller producers Larger producers
OSU
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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
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Historical assessment
Three year trend worksheet
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Record-Keeping Alternatives
Computerized RecordsSoftware is not expensiveEasy to keepEasy to generate reports
Hand RecordsDon’t have to learn to use softwareVery low costDifficult to sort and summarize
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Why Quicken?
A popular personal financial records software package
Inexpensive User-friendly Flexible
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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
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Quicken features
Accounts Budgeting Loan tracking Tax planning Reports and graphs Online banking, bill payment, investment features
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QuickenReports Cash flow Tax schedule Transactions Account balances Comparison Balance sheet
Financial Planning
Features Budgets Reconciliation Loans Savings College Retirement Refinance
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Financial Records Needed
Inventory of assets and liabilitiesTransaction journal of income and expensesCopies of tax returns filedEmployment records
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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
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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.
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Calculating Cost of Production
Identify enterprisesCow-calfStockerBreeding bullsNative pasture Improved pastureCustom workHorses
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Calculating Cost of Production
Identify enterprisesAllocate cash expenses Identify non-cash expensesAllocate non-cash expensesAdd them up!
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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
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Calculating Cost of Production
Identify non-cash expensesAccrual 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.
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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
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Damona’s 30+1 plan
Spend 30 minutes each week maintaining records
Take one step each month to improve your record-keeping system
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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
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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!
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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
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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/