Financial Planning with FAST Tools

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Financial Planning with FAST Tools

• By Paul N. Ellinger
• Gary Schnitkey
• Travis Farley

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FAST Tools

• farmdoc companion project initiated in 1999
• Development of 42 spreadsheet-based tools to aid
  decisions for producers, lenders, consultants and
  investors
• Facilitate use, access, distribution of tools and
  resources through CD and internet distribution
• Quarterly subscription
• farmdoc download
• via workshops
• Approximately, 30,000 CDs produced and another
  35,000 downloads
• Increased demand for education and training

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Current Resources and Activities

• 45 laptop computer lab
• FAST educator / coordinator
• CD duplication
• internal and cooperate w/other extension programs
• 50 annual meetings in Illinois / integrated FAST
• 80 were supported w/RMA
• Teaching modules for each program
• Case studies and examples

Theme Focus Teach Decision Making Integrate
and utilize FAST Not just computer training
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Educational Efforts3 Dimensions
Host(s)
Intended Audience
Content/Meeting Type
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Content Modules

• Financial planning
• Crop insurance
• Grain inventory pricing and management
• Machinery management
• Land investment and lease analysis
• Enterprise analysis

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AudiencesTargeted and General

• Farmers
• General and women via Annies project
• Lenders
• FSA
• Farm bureau managers
• College and High School Students
• Educators (train the trainer programs)
• College and Jr College instructors
• Vo-Ag Teachers
• Extension Educators
• State record fieldstaff (Iowa, KY, Illinois and
  Alabama)

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HostsGetting the right people at the table

• Typical Extension Channels
• Farm Bureau
• Farm Credit System
• Commercial Banks
• Growmark
• State Record Keeping Associations

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FAST Tools - Overview
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Financial Analysis
Assist in preparing and interpreting financial
information and measuring financial health

• Appraisal of current financial position
• Balance sheet
• Ratio calculator
• Cash flow planning
• Cash to accrual income approximation
• Estimates of deferred taxes
• Repayment capacity analysis
• Personal financial planning
• Longer-term planning in development
• Net worth allocation

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Investment Analysis
Assist in measuring the economic returns and
performance of alternative types of investments.

• Capital budgeting
• Grain bin analysis
• Land purchase analysis
• Lease versus purchase
• Machinery financing
• MACRS calculator
• Savings calculator
• Time value of money calculator

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Loan Analysis
Assist in calculating loan payments and
schedulescomparing alternative loans and
measuring the sensitivity of payments to changes
in loan parameters

• Loan amortization
• Loan comparison
• Revolving loan calculator

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Farm Management
Assist in developing enterprise budgets and
breakeven levels estimating costs of
machineryoperations and comparing crop
insurance andfarmland leasing alternatives

• Break even analysis
• Crop budgeting tool
• Crop insurance calculator
• Enterprise allocation and analysis
• Farmland lease analysis
• Machinery lease analysis

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Grain Marketing and Management
Assist in tracking grain inventory and
estimating the costs and returns of
grainstorage and delivery

• Crop storage analysis
• Grain delivery model
• Grain pricing model
• Grain inventory management

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Risk Management
Assist in evaluating the impact of farmland
lease types as well as marketing and crop
insurance strategies on revenue and income
distributions.

• Crop insurance historical evaluator
• Farm rent evaluator
• Marketing and crop insurance risk model

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Yield and Land Database Utilities
Assist in analyzing county-level historical
cropyields and land prices and assist with
common computations related to soil productivity
measures and yield predictions

• Illinois, Indiana, Iowa crop yield database
• Illinois farmland sales database
• Illinois soil productivity index utilities

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Financial Planning Modules
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Day Program

• Repayment analysis
• Ratio analysis
• Financial Planning
• Annual and multi-year

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Repayment Capacity

• Critical for determining and understanding the
  income needs from the farming operation
• Good discussions regarding family living budgets
• Resources
• Illinois record keeping data
• Consumer expenditure studies
• www.bls.gov/cex/

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Repayment Capacity, cont.
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Stage 1 Repayment Analysis
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Stage 2 Repayment Analysis
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For Illinois Risk Analysis

• Enter Budget and Crop Insurance Data
• Based on 31 years of county level production and
  price data
• Assess the likelihood of achieving income levels
  needed

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Ratio Calculator

• Designed to assess financial health through ratio
  and trend analysis
• Minimum set of data needed to complete the sweet
  16 ratios
• Calculate scaled health and trend index for
  each ratio.
• Store multiple years
• Professional version for multiple customers

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Educational Programs

• Case study
• Drawbacks and cautions of financial ratios
• Evaluate the strong and weak areas (liquidity,
  profitability, leverage, repayment capacity)
• Assess strategies to improve the various areas

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Why Budget?

• Decision analysis benchmarks
• Cost control
• Marketing
• Identify opportunities
• Contingency planning
• Meet financial goals discipline
• Managing cash surplus/deficits profitably
• Organization
• Communication
• Monitor performance
• And my lender wanted one

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Desired Components of a Financial Plan

• Focus on projected profitability of a plan not
  just cash flow
• What do we need to break even?
• What cushion do we have to meet debt payments?
• Sensitivity analysis (stress testing)
• Prices
• Production
• Costs
• Interest rates
• Basis of comparison and validation
• Benchmarks
• Previous year comparison
• Comparison to actual

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Getting Organized

• Synchronize cash, loan, and inventory balances
• Total cash expenses for 2005
• Current inventories
• Units and price
• Status of government payments
• Due from 2005 crop
• Balance and payment schedules for loans
• Interest owed at end of year
• Scheduled payments
• Items prepaid for 2006 crop and payable for 2005
  crop at the end of the year

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Getting Organized, continued

• Enterprise cropping plan
• acres
• share of acres
• lease type and share
• expected production
• government payments
• costs per acre
• Crop insurance protection
• Level of yield or revenue protection
• Livestock plan
• Expected production
• Expected sales and purchase price
• Feed costs
• Other livestock expenses

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Getting Organized, continued

• Planned capital purchases
• Expected level and cost of financing
• Nonfarm sources and uses of cash
• Wages
• Business income/expenses
• Family withdrawals
• Before visiting lender
• Check if lender is using suggested commodity
  prices
• View Consumer Credit Report See handout

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Financial Analysis

• Case Study
• Enter complete set of cash flow information
• Customize budget entries per site location

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Financial Planning Attributes

• Built-in risk parameters
• Quarterly projections
• Cash flow
• Income statements
• Commodity sensitivity and break even
• Previous year comparison
• Scenario analysis

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Financial PlanningDemos
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Comments and Questions

• Complimentary CDs
• Looking for reviewers, partners and ideas
• Cooperate in CD production
• Facilitate your programs