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Basic Financial Planning for Vegetable Crops

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Restaurants only have a 20% chance of surviving 2 years. The Real World ... Located within or near urban centers. Farmers usually pay a fee. Lower prices than ... – PowerPoint PPT presentation

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Title: Basic Financial Planning for Vegetable Crops


1
Basic Financial Planning for Vegetable Crops
  • Alice Rhea
  • Area Specialist
  • Farm Management

2
Think About This
  • Until I am measured, I am not known.
  • Yet how you miss me when I have flown.
  • What am I?
  • Time

3
The Real World
  • Businesses with fewer than 20 employees have only
    a 37 chance of surviving 4 years and only a 9
    chance of surviving 10 years.
  • Dunn Bradstreet
  • Restaurants only have a 20 chance of surviving 2
    years.

4
The Real World
  • Of failed businesses, only 10 close
    involuntarily due to bankruptcy.
  • The remaining 90 close due to
  • Business was not successful
  • Did not provide desired level of income
  • Entrepreneur Weekly, 1996

5
New Businesses
  • About 1 million Americans each year go into
    business for themselves.
  • After 2 years, 90 of new businesses fail.
  • Only 80 of all businesses have a business plan.
  • Having a business plan gives businesses a 90
    better chance of succeeding!
  • SCORE (Service Corps of Retired Executives)

6
Development of a business plan should be a basic
management practice for a new business venture.
No one plans to fail. But many fail to plan.
7
Improving Chances for Success with a Business Plan
  • Proves the plan will work on paper
  • Serves as a roadmap and compass for business
    development and direction
  • Helps identify potential business failure
  • Evaluates need and potential payback of borrowed
    money
  • Effective communication tool

8
Setting Goals and Objectives
  • What are you trying to achieve?
  • You are more likely to succeed when you know what
    you are trying to accomplish.
  • Goals and objectives are not final and
    unchanging.
  • Change with changing conditions.

9
Setting Goals and Objectives
  • Income
  • Add value to property
  • Tax advantages
  • Enjoyment
  • It is important that you pursue an enterprise
    that interests you. If not, the hard work, in
    sometimes unfavorable conditions, is going to get
    very old.

10
Three Phases of Business Startup
  • Idea Phase What IF
  • Explore the possibility
  • Feasibility Phase Can I
  • Determines whether the idea can actually be
    accomplished
  • Business Plan Phase Can Do
  • Written plan of action difficult to prepare
    (many try to do before feasibility phase)
  • Ongoing process must be kept current

11
Questions to Ask Yourself
  • What business am I in?
  • What makes my business unique?
  • Why do I want to be in business?
  • What do I like to do with my time?
  • Who are my customers?
  • How much time do I have?
  • Who is my competition?

12
What Should My Business Plan Include?
  • Executive Summary
  • Description of the Business
  • Products or Services
  • Location
  • Legal Structure
  • Operation Procedures
  • Personnel
  • Accounting Legal
  • Insurance
  • Marketing Plan
  • Strategy Goals/Strategy
  • Market Analysis
  • Customer Service
  • Financial Data
  • Pro Forma Cash Flow Statements
  • Balance Sheet
  • Profit/Loss Statement
  • Break-even Analysis
  • Projection Assumptions

13
Legal Structures
  • Sole Proprietorship owned by one individual
  • Advantages Control of one owner Flexibility
    Sole ownership of profits
  • Disadvantages Unlimited liability Less
    available capital compared to other types of
    business organizations

14
Legal Structures
  • Partnership Exists between 2 or more persons
    (general and/or limited partners)
  • Advantages Direct rewards Growth and
    performance facilitated Flexibility
  • Disadvantages Unlimited liability of general
    partners Liable for actions of other partners

15
Legal Structures
  • Corporation Distinct legal entity, distinct
    from the individuals who own it
  • Advantages Limited liability of shareholders
    Stability and relative permanence of existence
  • Disadvantages Formation is expensive Extensive
    government regulations and required local, state,
    and federal reports

16
Legal Structures
  • Limited Liability Company (LLC) Provides
    treatment similar to partnership and corporation
  • Advantages Separate legal existence Members
    liability limited to fixed amount of investment
  • Disadvantages New legal entity Ease of
    formation

17
If you cant make a profit with a pencil, you
cant make a profit with a plow.
18
Basic Considerations
  • Enterprise Feasibility
  • Climate, soils, water, potential varieties,
    insects, disease, growing season
  • Market Factors
  • Clearly defined product
  • Demand
  • Transportation
  • Competitors
  • Expected Sales Volume

19
Production Considerations
  • Buildings, machinery, equipment, management
    labor requirements
  • Minimum/Maximum production (yield) potential
  • Acquiring capital to establish enterprise
  • Annual operating funds needed

20
Profitability Considerations
  • Impact on existing enterprises
  • Complementary or supplementary
  • Competition for resources
  • Affect on cash flow for business

21
Risk Considerations
  • Impact on farms overall risk
  • Affect of resource reallocation and investment of
    additional resources

22
Miscellaneous Considerations
  • Management skills and time required
  • Legal restrictions, regulations, liabilities
  • Special record-keeping
  • Affect on off-farm employment

23
Marketing Your Product
  • Pick Your Own (PYO)
  • Offers greatest potential savings to both farmer
    consumer
  • Consumers may need close supervision
  • Prices usually lowest
  • Consumer selection
  • Little harvesting sometimes marketing costs
  • Not for all fruits vegetables

24
Marketing Your Product
  • Roadside stands markets
  • Generally stay open longer seasons and offer
    wider variety
  • Location, Location, Location
  • Eliminate the middleman
  • Additional operating costs
  • Potential economies of scale

25
Marketing Your Product
  • Farmers Market
  • Located within or near urban centers
  • Farmers usually pay a fee
  • Lower prices than grocery stores
  • Wide selection
  • Community Supported Agriculture
  • Subscription farming

26
Potential Goals for your Operation
  • Tracking employee time per job
  • Determining which area of the company is more
    profitable
  • Increasing
  • Measuring
  • Analyzing
  • Eliminating past due accounts receivable

27
Do You
  • keep records?
  • know which enterprise are profitable?
  • know costs for each job?
  • know the percent of sales for a particular plant?
  • know individual cost of production per
    plant/cow/crop?

28
Record-Keeping
  • Why should we keep records?
  • Proof
  • Decision Aids
  • Institutional Requirements
  • Environmental Regulations

29
Record-Keeping vs. Record Analysis
  • Record-Keeping
  • Filing
  • Categorizing
  • Maintaining
  • Record Analysis
  • Evaluating
  • Make informed decisions

30
Financial Record-Keeping
  • What are the methods?
  • Computer
  • Higher initial out-of-pocket expense
  • May require significant amount of study
  • Fast
  • Accurate
  • Can be a powerful analysis tool
  • Hand
  • Low initial out-of pocket expense
  • Easy to implement
  • Time-consuming
  • More opportunities to make mistakes
  • Limited in extent of analysis without time and
    effort

31
Maintaining Financial Records Utilizing Quicken
QuickBooks
32
Record-Keeping
  • Record-Keeping Workshops
  • QuickBooks
  • Quicken
  • Individual Help
  • Computer Applications
  • Spreadsheets
  • Microsoft Excel
  • Corel Quattro Pro
  • Other computer programs
  • Improved Records allow for improved decisions.

33
Quicken or QuickBooks
  • Account Registers
  • Categorizes and classifies transactions when they
    are posted
  • Comprehensive reports and graphs
  • Accounts payable or receivable
  • Balance sheets
  • Profit and Loss statements
  • Check writing features
  • Employee payroll
  • Can show you instantly how much money you have
    and where it goes!

34
QuickBooks Applications
  • Payroll
  • Class Tracking
  • Invoicing
  • Time Tracking per Job
  • Timesheets
  • Items
  • Inventory

35
Reading Reports
  • Profit Loss
  • Profit Loss by Class
  • Balance Sheet
  • Inventory Reports
  • Item Price List
  • Sales by Item Summary
  • Tax Forms Reports

36
Comments from Clientele
  • better opportunity to analyze profit and loss
    with more confidence to make more profitable
    decisions.
  • We will no longer need such extensive CPA
    services.
  • Will greatly impact profits and allow me to
    increase customer base.
  • will be able to track a large inventory.

37
Ten Mistakes to Avoid
  • Start a business with partners and associates
    with no formal written business agreements.
  • Failure to have a formal business plan.
  • Insufficient financial support.
  • Failure to consider competition.
  • Use do-it-yourself legal and accounting help.

38
Ten Mistakes To Avoid
  • No experience.
  • Hire the wrong people.
  • Wrong location.
  • Start a business where there is little demand.
  • A dislike of sales.

39
Business Operation Questions
  • Where am I?
  • Where do I want to be?
  • How can I best get there?

40
Where to Get Help
  • The University of Tennessee Extension
  • MANAGE Program
  • Lends more toward production agriculture
  • Hay production
  • Fruit Vegetable production
  • Breeding colt sales
  • Center for Profitable Agriculture
  • Value-added
  • Agri-tainment

41
UT Extension Contacts
  • County Extension Office
  • Area Farm Management Specialist serves each
    county
  • State Extension Website
  • http//www.utextension.utk.edu
  • Center for Profitable Agriculture
  • http//cpa.utk.edu

42
References
  • SCORE, Knoxville Chapter
  • http//www.scoreknox.org
  • Small Business Administration
  • http//www.sba.gov

43
Measuring, Analyzing, Navigating,
and Achieving Goals Effectively
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