Basic Financial Planning for Vegetable Crops

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Basic Financial Planning for Vegetable Crops

• Alice Rhea
• Area Specialist
• Farm Management

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Think About This

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

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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.

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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

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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)

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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.
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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

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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.

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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.

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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

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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?

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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

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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

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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

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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

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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

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If you cant make a profit with a pencil, you
cant make a profit with a plow.
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Basic Considerations

• Enterprise Feasibility
• Climate, soils, water, potential varieties,
  insects, disease, growing season
• Market Factors
• Clearly defined product
• Demand
• Transportation
• Competitors
• Expected Sales Volume

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Production Considerations

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

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Profitability Considerations

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

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Risk Considerations

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

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Miscellaneous Considerations

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

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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

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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

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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

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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

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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?

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Record-Keeping

• Why should we keep records?
• Proof
• Decision Aids
• Institutional Requirements
• Environmental Regulations

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Record-Keeping vs. Record Analysis

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

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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

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Maintaining Financial Records Utilizing Quicken
QuickBooks
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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.

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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!

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QuickBooks Applications

• Payroll
• Class Tracking
• Invoicing
• Time Tracking per Job
• Timesheets
• Items
• Inventory

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Reading Reports

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

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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.

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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.

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Ten Mistakes To Avoid

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

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Business Operation Questions

• Where am I?
• Where do I want to be?
• How can I best get there?

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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

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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

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References

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

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Measuring, Analyzing, Navigating,
and Achieving Goals Effectively