1. Specialty Farmers Workshop Financials
Sponsored by: Hawaii Forest Industry Association Hawaii Forest Institute
Presented by: Hawaii Small Business Development Center
Judi Mellon

2. Sounds & is Easy…Step by Step
Think it out:
I have __ acres of leased (or owned) property on which will grow ___ number of crops which will need to be planted in year 20__ and will be harvested in year __ and yield ___. Estimated revenue of $___ in Year ___ with total costs of $___ and netting a profit of $___.

3. Two Sides to Every Story
10 acres to plant 1,000 Christmas trees in Ready to harvest in 300 trees in 2021 at estimated $50/each =$15,000 in gross revenue with total costs of $5,000 netting profit of $10,000.
Same formula, change the Business Plan:
Yield 1,000 Hawaii grown trees at retail for $110 per pound=$110,000 in gross revenue with total costs of $50,000 netting a profit of $60,000.

4. Very Different Plans Which Farm are you?
Which is more appropriate for your life & land?
Each is very different Business Plan
Type of Marketing? Advertising?
Type of Sales? Online? Direct to Consumer?
Selling wholesale? Selling as a Commodity? Transporting/Shipping?
Business plan must include financial plan

5. Key Financial Reports Income Statement Balance Sheet
Cash Flow Projection

6. Sample Income Statement
Sales $300,000
-Direct Costs (Cost of Goods Sold) 90,000
Gross Profit $210,000
-Operating Expenses
-(Selling, general, & admin.) 160,000
Net Income $ 50,000

7. Sample Balance Sheet (what you own & what you owe)
Assets (Own):
Cash $30,000
Acct Rec ,000
Inventory ____55,000
Total Current Assets
$ 90,000
Equipment $30,000
Building ,000
Total Fixed $ 80,000
Total Assets $170,000
Liabilities (Owe):
Acct Payable $20,000
Current Liab $20,000
Loan Payable $50,000
Total Long-Term$50,000
Total Liabilities $70,000
Net Income $60,000
Owners Equity $40,000
Total OE $100,000
Total Liab+OE $170,000

8. Sample Cash Flow Projection
12-Month Cash Flow Projection
Month
Start-Up 1 2 3 4 5 6 7 8 9 10 11 12
TOTAL
1. CASH ON HAND (beg'g month)
5,000
14,500
26,500
32,200
40,100
40,800
37,500
34,200
26,900
3,200
700
19,900
2. CASH RECEIPTS
Sales
40,000
14,000
10,000
18,000
28,000
300,000
Cost of Goods
8,000
2,000
16,000
90,000 -
Loan or Other Cash Injection
3. TOTAL CASH RECEIPTS
32,000
26,000
12,000
(6,000)
38,000
228,000
4. TOTAL CASH AVAILABLE
37,000
46,500
52,500
58,200
52,100
48,800
45,500
44,200
20,900
19,200
38,700
45,900
5. CASH PAID OUT
Operating Expenses
Salaries and wages
100,000
Payroll taxes
1,000
20,000
Lease land
4,000
Equipment Maintenance
1,500
Insurance
1,800
Utilities
500
6,000
Telephone
150
Office supplies & Misc
Shipping
200
Marketing and advertising
600
900
5,500
Auto expense gas & maintenance
300
3,600
Interest on loan
Cash Out on Operating Expenses
16,700
17,000
14,800
14,400
15,200
15,500
160,000
SubTotal Cash
17,800
29,800
35,500
43,400
44,100
36,200
6,500
23,200
30,700
68,000
Loan Principal Payment
Capital Purchases- Equipment/Bldg
Owner's Withdrawal
3,000
36,000
6. NON-OPERATING CASH PAID OUT
3,300
9,300
45,600
7. CASH BALANCE
27,400

9. Cash Flow Projection
Cash flow statement shows cash; income statement shows profitability
Lists flows of cash in & out of business
Important for farm business – need cash to continue before crop comes in
Shows amount & ALSO timing of cash flows
Projects cash balance for each month.

10. Cash Flow Projection Tracking Money Coming In and Going Out
Sell product
Receive money from proceeds of loan (debt)
Receive money from new investor or owner (equity)
Money Going Out:
Pay expenses incurred by farm
Purchase asset, such as equipment
Make payments to loan/liability
Distribute farm earnings to owners

11. Takeaways Devise your method to track income & expenses
Know 3 financial reports:
Income Statement – income/expenses for period
Balance Sheet – what you own/what you owe
Cash Flow Projection – how cash is expected to flow

12. Cost of Production
Costs incurred by farm to produce a good

13. Why Must I Know Cost of Production?
Tells you how to price your item
Ensures charging more than it costs to make
Ensures you can be profitable!

14. Cost of Production Components Fixed Costs + Variable Costs = Production Costs
Fixed Cost (operating expenses)
Expenses that occur each month regardless of output
Also known as indirect cost, operating expenses or overhead
Ex: Rent, Management Salaries, Utilities
Variable Cost/Direct Costs or Cost of Goods Sold Expenses that vary directly with production of good/product
Ex: Raw Materials and Production Labor

15. Fixed Costs (FC) Must Pay No Matter Production Level
Lease of land
Administrative salaries
Marketing materials/Advertising
Utilities
Website hosting/maintenance
Freight-out (is negotiable)

16. Variable Costs (VC) Fluctuates Depending on Production/Sales
Production labor, including payroll taxes & benefits, direct supervisory labor
Use of equipment
Seed, feed, ingredients, freight-in
Packaging materials, boxes, tape

17. Fixed Costs (FC) & Variable Costs (VC)
Understand difference between FC & VC (COGS) because it effect your Business Model and Average Unit cost

18. Activity 1: Fixed vs. Variable Costs
Santa’s Christmas Trees
Jan 1 – Dec 31, 2015
Expense:
Lease of land $1000
Owner’s Salary
Advertising
Debit/Credit Card Fees
Production Labor
Insurance
Interest Expense
Seedlings
Bank Service Charges
Utilities
Feed/Fertilizer
Total $ 7150

19. Average Cost per Unit (AC)
Total Cost/Quantity = Average Cost per Unit
Cost of Goods Sold (COGS) will change based on variable costs

20. Average Costs Qty FC + VC = TC Avg Cost 0 $100 $ 0 $100
Cost of Goods Sold (COGS) changes based on variable costs
Qty FC VC = TC Avg Cost
0 $100 $ $100
10 $100 $ $ $12.00
20 $100 $ $ $7.00
40 $100 $ $ $4.50
$100 $ $ $3.00

21. Takeaways
Know your total cost of production! Ensure charging more than costs
Include shipping in & out in cost calculation
Set pricing for each class – wholesale, distributor, broker, direct to consumer
Know your competitor’s prices
Adjust your price when costs go up

22. Know your Terminology Margin vs. Mark-up
Don’t confuse Margin & Mark-Up
Margin: Selling price minus total cost divided by selling price
$ $2.00 / $3.50 = 42.9% margin
Mark up: Selling price minus total cost divided by total cost
$ $2.00 / $2.00 = 75% markup
Work it both ways!

23. Wholesale Mark-up Sales Direct to Retailer
Varies a lot depending on demand for product 75%- 150%
$ $2.00 / $2.00 = 75% markup
$ $2.00 / $2.00 = 150% markup
You must gauge: What price can retailer sell product?
Know your competitors
Getting someone to distribute your product is key, BUT do not discount product price below Average Cost per Unit for current production or you lose money

24. Taking Product Direct to Market
Plan excellent display!
Must budget costs of getting to market
Farmers Market, Trade Show, Events
Travel costs
Trade Show/Market fees
Transporting or Shipping products
Labor at event
Who’s going to work the Event?
Good at Sales and Marketing?

25. Business Model Canvas