Adding New Enterprises: The Financial Aspects Dr. Alex White Virginia Tech 540-231-3132.

Slides:



Advertisements
Similar presentations
Dr. Curt Lacy Extension Economist- Livestock EVALUATING NEW HAY ENTERPRISES.
Advertisements

National 4/5 Business Management
Financial Management F OR A S MALL B USINESS. FINANCIAL MANAGEMENT 2 Welcome 1. Agenda 2. Ground Rules 3. Introductions.
 Know the factors of production  Understand what budgeting is and why it is important  Demonstrate knowledge of budgeting principles, limitations of.
Time and Cost Estimation
03 July 2015Course Overview1 Energy Project Evaluation RES Course ESP606 Goal: To build up knowledge to so that participants will be able to assess if.
Chapter 10 Enterprise Budgeting
Managing Risks With Financial Analysis What's Your Plan?
Ownership vs Custom Hire: Evaluating the Decision Dr. Alex White Virginia Tech
Grazing Economics: Yeah, but will it make money? Dr. Curt Lacy Agricultural Economists University of Georgia.
Entrepreneurial Mindset and Main Topics in a Sustainable Business Plan By Gonzalo Manchego Business Consultant.
Partial Budgeting AAE 320 Paul D. Mitchell. Goal 1.Explain purpose of partial budgets 2.Illustrate their structure and use 3.Give some examples.
Lecture 15-2 Building Financial Models Material for Lecture 15-2 –Read Chapters 13 and 14 –Lecture 15-2 Farm.xlsx.
Cash Flow Management For Non-Profits Presented by Theresa F. Weber Alexandria Consulting Team (ACT) LLC
Benefits, costs and income statement. Expenses x costs Costs – financila accounting: Amount of money which the enterprise used to get benefits. General.
FINANCIAL STATEMENTS. Why Use Financial Statements? Investors and bankers Investors and bankers Suppliers and creditors Suppliers and creditors You and.
ECEN Winter 2015 Product Development Economics.
A.M.E.S. Agricultural Management e-school An ISU Extension Outreach Institute Annie’s Project -- AMES Annie’s Project Students receive access to one AMES.
1-1 CHAPTER 1 An Overview of Financial Management.
Advanced Business Planning Jeffrey Hyde The Pennsylvania State University Penn State is committed to affirmative action and the diversity of its workforce.
Cotton is the major field crop produced in Texas, accounting for approximately 11.2% of all Texas agricultural commodity cash receipts in 2005 (TASS).
Economics of Hay Production Dr. Curt Lacy Extension Economist-Livestock.
Using Enterprise Budgets and Income Statements to Improve Efficiencies and Profitability of Catfish Farms Carole R. Engle Aquaculture/Fisheries Center.
Leasing: an Introduction Gordon Groover, Tom Stanley, Jesse Richardson.
Self-Assessment: Overview Decide that area of operation that need attention Develop a plan and a qualitative self- assessment of those areas.
Benefits, costs and income statement. Expenses x Costs Costs - financial accounting: Amount of money which the enterprise used to get benefits. - general.
Land Use Decisions Using Precision Agriculture Carl Dillon Agricultural Economics.
Financial Analysis Ag Management Chapter 3. Objectives Know the three kinds of financial analysis Be able to calculate liquidity, solvency, and equity.
Budgets: Uses in Farm Management
Chapter 10 Enterprise Budgeting
Budgeting Tools Enterprise Budgeting Partial Budgeting
Financial Management Back to Table of Contents. Financial Management 2 Chapter 21 Financial Management Analyzing Your Finances Managing Your Finances.
Econ. 338C: Introduction to Marketing--Grain Dr. Robert Wisner, University Professor Iowa State University Dr. Robert Wisner, University Professor Iowa.
2005 RME - Executive Marketing1 Executive Marketing: Developing a Marketing Plan Scott A. Mickey.
Whole Farm Planning—Ch.12 Key questions n What are the steps in preparing a whole farm budget? n What is it used for? n How do short-run and long-run budgets.
Budget Analysis Ag Management Chapter 4. Planning a Budget GGood planning = Increased Returns TThe job you do when your budget for your farm or ranch.
Feasibility Study.
Econ 338C, Spring 2009 ECON 338C: Topics in Grain Marketing Chad Hart Assistant Professor/Grain Markets Specialist
GRAZING ECONOMICS: YEAH, BUT WILL IT MAKE MONEY? Dr. Curt Lacy Agricultural Economists University of Georgia.
Partial Budget Analysis. is a tool to analyze incremental business changes such as buying additional machinery or equipment or buying land.
Economic Considerations Chad Hart Assistant Professor of Economics Extension Economist (515)
The Business Plan: Creating and Starting the Venture
Financial Management Glencoe Entrepreneurship: Building a Business Analyzing Your Finances Managing Your Finances 21.1 Section 21.2 Section 21.
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ECONOMICS OF IMPROVED GRAZING SYSTEMS Dr. Tommie Shepherd, Dr. John McKissick and Dr. Curt Lacy Extension Economist-Livestock University of Georgia.
Farming Is Big Business Dr. Norm Dalsted Department of Agricultural and Resource Economics Colorado State University.
Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen.
Department of Applied Economics and Management Cornell University Ithaca, NY Dr. Wen-fei Uva Senior Extension Associate What is Your Profitability?
Lecture 21-2 Building Financial Models Material for Lecture 21-2 –Read Chapters 13 and 14 –Lecture 21 Pro Forma.xlsx –Lecture 21 Fin Risk Manager.xlsx.
2014 State Farm Management Non- Math Problems. 7. How many pounds are in a metric ton? A. 2,000.0 B. 2,204.6 C. 3,666.7 D. 4,012.5 E. None of the above.
Welcome and Lunch Welcome and Lunch Virginia Beginning Farmer and Rancher Coalition Virginia Beginning Farmer and Rancher Coalition Essentials of Four.
National 4/5 Business Management
Chapter 10: Kay and Edwards
Key Concepts and Skills
Sound Financial Management: Working With Cattlemen
Chapter 12: Kay and Edwards
Partial Budgeting AAE 320 Paul D. Mitchell.
Chapter 11: Kay and Edwards
Why schedules are important
Enterprise Budgets Components and Concepts
Cash Flow Stephen Daze Dom Herrick Entrepreneur in Residence
Global Entrepreneurship and Small Business Management
Enterprise Budgets A Decision Tool That Works in Farm Management
Ag & Resource Economics
Business Checklist for Starting a Value-Added Enterprise
Partial Budgeting Kevin Bernhardt June 2016
Business Plan Structure
Global Entrepreneurship and Small Business Management
Agricultural Marketing
© 2011 South-Western | Cengage Learning Global Entrepreneurship and Small Business Management Entrepreneurial Enterprises The Business Plan.
Presentation transcript:

Adding New Enterprises: The Financial Aspects Dr. Alex White Virginia Tech

So, You Want to Add an Enterprise  Lots of opportunities! Products  Alternative crops, medicinal crops, organics, etc. Services  Freezer meats, catering, landscaping, custom work  Take advantage of markets  But, treat it like a business

Treat it Like a Business?  Identify a need for your product/service Do this before starting production!!  Clearly define your target market Develop customer profiles  Clearly define your business goals!! Why are you in this business?

Other Business Aspects  Legal organization Sole Prop., Partnership, LLC, C-corp, S-corp  Labor needs and availability Develop written job descriptions  Risk management Insurances, protocols, etc. Liability insurance is a must!!

Still More Business Aspects  Marketing – the 4 Ps Product, Pricing, Promotion, Place Critical for small businesses!!  Contingency Plans (Plan B, C, D) Helps you react to or avoid potential problems  And Finally… The Financial Aspects

 Profitability Ability to generate profits  Short run and Long run Breakeven Analysis  Cash Flow Can you meet your cash outflows?  Making the Decision Financial and non-financial factors

Profitability  The ability to generate profits (Rev – Costs)  Crucial for long-term success!  Need to identify all costs associated with the new enterprise Enterprise Budgets – products  Ginseng, blackberries, pumpkins, hair sheep, etc. Job Cost Estimates – services  Freezer meats, catering, consulting, landscaping, etc.

Enterprise Budgets  Listing of all revenues and costs Associated with a particular enterprise  Looks at profitability Cover Variable Costs (VC) in short run Cover Total Costs (TC) in long run  Allows for Breakeven Analysis Powerful tool!!  Identify potential management strategies

Pumpkin Enterprise Budget  Look at the information Revenues Variable Costs Fixed Costs Analysis  Return Above VC  Return Above TC  Breakeven Price and Yield

Using an Enterprise Budget  Should you grow pumpkins this year? For the next 10 years?  What can you do to improve the profitability?  How much operating capital will you need for 5 acres of pumpkins?  How much labor do you need for 5 acres?

Other Examples  Ginseng – 4-year production process  Blackberries – 15-year process  Basically the same process Identify the inputs, the costs, the returns

Job Cost Estimates  Great tool for “pricing” your services  Common in contracting, landscaping  Similar to Enterprise Budgets  Binford Tool landscaping example  Freezer Meat example

Cash Flow Statement  Cash flow is “King”!!  Need to be able to meet your cash outflows  Very powerful tool for managers  Allows you to determine: Operating capital needs When to schedule your payments Your top 5 expenses How to “manage” your cash flows

Cash Flow Examples  Long form – more detail  Short form – “quick and dirty”

Using a Cash Flow Statement  What changes would you make to this operation?

Evaluating the Decision  Look at the “Goods” and “Bads”  Partial Budget Powerful decision making tool Looks at change in profits due to changes in an operation Helps you consider impact on overall operation Non-financial factors!

Partial Budget  Evaluate a change to an operation Adding an enterprise, increasing/decreasing, buying machinery, changing rations, etc.  Only consider factors that will change!!  Good Side Added Revenues and/or Reduced Expenses  Bad Side Reduced Revenues and/or Added Expenses

What a Partial Budget Tells You  The NET CHANGE in profit NOT the actual profit  If net change is positive, financially it makes sense to make the change  If negative, you will be reducing your profits if you make the change  Other (non-financial) factors?

Partial Budget Examples  Diner – no longer open for breakfasts  Buying spray equipment vs custom hire  Growing more hay, less sheep  Adding 1 acre of ginseng  Direct marketing livestock vs send to market  The list is endless!

Partial Budget Exercise  1. Growing 2 acres of coriander  2.Replacing 2 acres of grass hay with 2 acres of coriander

So What?  BEFORE you get into business Do some homework on the business Look at all aspects, not just financials!  Examine the profitability AND cash flow Breakeven and Sensitivity analyses  Partial budgets help you think it through Think about the non-financial factors!!  Use your analysis to make a sound decision

Where to go for Help  Local Extension Service WVU, VT, NC State, Ohio State, MD Production materials May have economic materials  Don’t count on it for medicinal plants!  Other Producers  Lenders Possible experience with enterprise

More Help (Maybe!)  Alex’s Small Business Management course Comprehensive business plans as student projects  Copies of Excel spreadsheets Great management tools Excellent for sensitivity analysis Alex

Parting Shots  Don’t forget: Marketing Risk management & legal organization Contingency plans  Must cover VC in short run TC in long run!  Enjoy what you do – that’s worth a lot!!