Farm Business Planning and Management

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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 tools

• Record-keeping alternatives
• Trend analysis
• Three year income and expense summary
• Calculating cost of production for enterprises
• Damonas 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
External Scanning
Internal Scanning
Business Vision, Mission, Goals
Strategic Plan
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Producers having a long-term business plan
OSU
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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

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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 Management

• Define each individuals role in the business
• Develop an organizational chart for large
  operations

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Small may not be simple!
Nancy
Dan
or
Nancy
or
Dan
Nancy
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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 requirements
• Historical and projected financial statements
• Enterprise analysis
• Risk assessment
• Break-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
OSU
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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

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Historical assessment

• Three year trend worksheet

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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

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Why Quicken?

• A popular personal financial records software
  package
• Inexpensive
• User-friendly
• Flexible

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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

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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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• Quicken
• Reports
• 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 liabilities
• Transaction journal of income and expenses
• Copies of tax returns filed
• Employment 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 enterprises
• Cow-calf
• Stocker
• Breeding bulls
• Native pasture
• Improved pasture
• Custom work
• Horses

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Calculating Cost of Production

• Identify enterprises
• Allocate cash expenses
• Identify non-cash expenses
• Allocate non-cash expenses
• Add 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 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.

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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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Damonas 301 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/
• 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/