1. Farm Business Planning and Management

2. Our goal?
To help you improve the management of your business through business planning.

3. Introduce some management tools
Record-keeping alternatives
Trend analysis
Three year income and expense summary
Calculating cost of production for enterprises
Damona’s plan

4. 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?

5. Strategic Plan Component
Personal Vision,
Mission, Goals
Family Vision,
Mission, Goals
External Scanning
Internal Scanning
Business Vision,
Mission, Goals
Strategic Plan

7. Producers having a long-term business plan***
OSU

8. 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

9. 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
Resources: Financial = savings, investments, ability to borrow. Land = owned and rented. Labor = owner contributed, family, hired, full and part-time, other capital = machinery, equipment, livestock, vehicles. Management = livestock, crop, financial, marketing, risk, personnel
Planning restrictions and constraints: Unwillingness to take on debt? Children/help leaving for college? Off-farm job limiting hours available on farm?
Products or services: Producing a commodity (e.g. calves to be sold at sale barn)? Value-added product (bred heifers sold private treaty, Laura’s Lean Beef)? Service (custom work, seed cleaning, AI)?
Market outlets: Local, regional, feeder, feedlot, packer, specialized (Laura’s Lean, etc.), organic

10. Operations, Organization, and Management
Define each individual’s role in the business
Develop an organizational chart for large operations
Individual roles: Johnny = machinery and equipment, Sue Lynn = money manager/recordkeeper/marketing specialist, Robert = livestock caretakers
Even if not a large operation, organizational chart may be useful in identifying who reports to whom. Is everyone equal? Someone head honcho?

11. Small may not be simple! or or Nancy Dan Nancy Dan Dan Nancy
What is different about these schemes?
Dan
Nancy

12. Operations, Organization, and Management
Identify most appropriate legal arrangement: sole proprietorship, partnership, corporation, etc.
Develop plans for allocation of profits
Ch. 4 deals with legal arrangements
Allocation of profits: can range from wage to salary, include incentives for performance such as achieving desired lbs weaned per exposed female, pregnancy percentage, etc. Want to have incentives that support goals. 100% calf crop may cost more than it returns and set up person responsible for failure.

13. The Financial Plan Initial financial requirements
Historical and projected financial statements
Enterprise analysis
Risk assessment
Break-even analysis
The financial plan is a tool to allow you to look ahead in an objective fashion to anticipate potential outcomes, weigh risks, lay out plans to deal with potential problems. May also be a communication tool with lenders, other farm partners.
Spelling out initial financial requirements is particularly important to beginning farmers, producers planning a farm expansion or new enterprise. The plan prepares you to go in with eyes wide open. Low-balling can be risky. Want to be realistic. Lender won’t be impressed if you have to come back and say you need twice as much operating capital as originally specified.
Historical statements provide reference points and benchmarks, indicate what has actually been realized. While past performance doesn’t guarantee that future performance will be equivalent it does document reality.
Evaluating financial performance is like the annual physical exam you may undergo personally. It isn’t something you necessarily look forward to, but it provides information from which you make good decisions and deal with problems before they get out of hand.

14. How would you rate your current record-keeping system?
Good?
Bad?
Ugly?

15. Producers’ financial record-keeping systems**
OSU

16. 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
Even people like Bill Gates who make tons of money realize the value of records. Wall Street Journal reported a planned increase in analysis of profits from products versus services. Psychology literature suggests that we soon mentally downplay the bad things that happen to us. For instance, KY study showed that producers overestimated yields in disaster year within 3 years of the disaster.
Not written down? Fact or fiction? It’s a dream, rather than a plan.
Minimal level of records needed to stay out of jail. More needed to effectively analyze the business. Accountants say producers can earn well over $50/hour investing time in keeping and analyzing records. Producer who broke his leg and hired a student to feed one winter said that it had a benefit in that he spent more time making marketing decisions, for instance, and more money.

17. Historical assessment
Three year trend worksheet

18. Record-Keeping Alternatives
Computerized Records
Software is not expensive
Easy to keep
Easy to generate reports
Hand Records
Don’t have to learn to use software
Very low cost
Difficult to sort and summarize

19. Why Quicken? A popular personal financial records software package
Inexpensive
User-friendly
Flexible

20. Quicken’s 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

21. Quicken features Accounts Budgeting Loan tracking Tax planning
Reports and graphs
Online banking, bill payment, investment features

23. Quicken Reports Financial Planning Features Cash flow Tax schedule
Transactions
Account balances
Comparison
Balance sheet
Financial Planning
Features
Budgets
Reconciliation
Loans
Savings
College
Retirement
Refinance

24. Financial Records Needed
Inventory of assets and liabilities
Transaction journal of income and expenses
Copies of tax returns filed
Employment records

25. 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

26. 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.

27. Calculating Cost of Production
Identify enterprises
Cow-calf
Stocker
Breeding bulls
Native pasture
Improved pasture
Custom work
Horses

28. Calculating Cost of Production
Identify enterprises
Allocate cash expenses
Identify non-cash expenses
Allocate non-cash expenses
Add them up!

29. 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

30. 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.

31. 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
In place for 20 years. Specialists get good reviews. Not widely talked about as people view financial matters as private. Work with producers in evaluating all kinds of decisions. Easy way to get objective, third party review of situation, gain referrals to educators to assist in weak areas. Part-time people around the state to meet with producres locally at time and place that is convenient for producer.

32. Damona’s 30+1 plan Spend 30 minutes each week maintaining records
Take one step each month to improve your record-keeping system

33. 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

34. 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!

35. 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

36. Just do it!
References:
OSU Ag Econ Department,
OSU Extension publications,
National Ag Risk Management Library,
Annie’s Project,
Business Planning Guidebook, Minnesota Institute for Sustainable Agriculture,
FINPACK Business Planning Software,