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Farm Business Planning and Management

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Title: Slide 1 Author: Bill Burton Last modified by: Damona Doye Created Date: 11/1/2006 2:07:52 PM Document presentation format: On-screen Show (4:3) – PowerPoint PPT presentation

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Title: Farm Business Planning and Management


1
Farm Business Planning and Management
2
Our goal?
  • To help you improve the management of your
    business through business planning.

3
Introduce some management tools
  • Record-keeping alternatives
  • Trend analysis
  • Three year income and expense summary
  • Calculating cost of production for enterprises
  • Damonas 30 1 plan

4
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?

5
Strategic Plan Component
Personal Vision, Mission, Goals
Family Vision, Mission, Goals
External Scanning
Internal Scanning
Business Vision, Mission, Goals
Strategic Plan
6
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7
Producers having a long-term business plan
OSU
8
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

9
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

10
Operations, Organization, and Management
  • Define each individuals role in the business
  • Develop an organizational chart for large
    operations

11
Small may not be simple!
Nancy
Dan
or
Nancy
or
Dan
Nancy
12
Operations, Organization, and Management
  • Identify most appropriate legal arrangement sole
    proprietorship, partnership, corporation, etc.
  • Develop plans for allocation of profits

13
The Financial Plan
  • Initial financial requirements
  • Historical and projected financial statements
  • Enterprise analysis
  • Risk assessment
  • Break-even analysis

14
How would you rate your current record-keeping
system?
  • Good?
  • Bad?
  • Ugly?

15
Producers financial record-keeping systems
OSU
16
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

17
Historical assessment
  • Three year trend worksheet

18
Record-Keeping Alternatives
  • Computerized Records
  • Software is not expensive
  • Easy to keep
  • Easy to generate reports
  • Hand Records
  • Dont have to learn to use software
  • Very low cost
  • Difficult to sort and summarize

19
Why Quicken?
  • A popular personal financial records software
    package
  • Inexpensive
  • User-friendly
  • Flexible

20
Quickens 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

21
Quicken features
  • Accounts
  • Budgeting
  • Loan tracking
  • Tax planning
  • Reports and graphs
  • Online banking, bill payment, investment features

22
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23
  • Quicken
  • Reports
  • Cash flow
  • Tax schedule
  • Transactions
  • Account balances
  • Comparison
  • Balance sheet
  • Financial Planning
  • Features
  • Budgets
  • Reconciliation
  • Loans
  • Savings
  • College
  • Retirement
  • Refinance

24
Financial Records Needed
  • Inventory of assets and liabilities
  • Transaction journal of income and expenses
  • Copies of tax returns filed
  • Employment records

25
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

26
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.

27
Calculating Cost of Production
  • Identify enterprises
  • Cow-calf
  • Stocker
  • Breeding bulls
  • Native pasture
  • Improved pasture
  • Custom work
  • Horses

28
Calculating Cost of Production
  • Identify enterprises
  • Allocate cash expenses
  • Identify non-cash expenses
  • Allocate non-cash expenses
  • Add them up!

29
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

30
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.

31
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

32
Damonas 301 plan
  • Spend 30 minutes each week maintaining records
  • Take one step each month to improve your
    record-keeping system

33
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

34
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!

35
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

36
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/
  • Annies Project, http//www.extension.iastate.edu/
    feci/annie/
  • Business Planning Guidebook, Minnesota Institute
    for Sustainable Agriculture, http//www.misa.umn.e
    du/vd/bizplan.html
  • FINPACK Business Planning Software,
    http//www.cffm.umn.edu/Software/BusinessPlan/
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