SEE IT BIG Keep It Simple

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Holly Crawford
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1 Helping Hands Guiding Farm Families Through Challenging Times Angie Sullivan Division of Agricultural Development DATCP SEE IT BIG Keep It Simple The Best indicator of the FUTURE is the past history of the unit. 1

Red Flags How to Analyze Your Farm Finances Two Management

yourself. The sooner you start, the better.

Third, make managing, (planning, organizing, staffing,

2 Red Flags How to Analyze Your Farm Finances Two Management Goals Maximize Profits Minimize Losses First, light a fire in yourself. The sooner you start, the better. Second, network with other successful farmers. Third, make managing, (planning, organizing, staffing, directing, and controlling), fun to do and learn. Fourth, install a decision making process into the business. 2

3 2. Communicate With Your Lender Provide accurate balance sheet and income statements. Provide a projected cash flow. Arrange for credit in advance. Develop repayment plans. Exercise business integrity. 3. Keep Accurate/Detailed Records Computer records allow the most flexibility in record keeping, but keep in mind: GARBAGE IN/GARBAGE OUT. Balance your records with your checking account for maximum accuracy Know Your Cost of Production. 3

4. Review your financial position at least annually to determine areas where you are doing well and areas you can improve: Once you have accurate records, there are literally

Surround yourself with professionals who can help advise you in the complicated task of managing your farm.

4 4. Review your financial position at least annually to determine areas where you are doing well and areas you can improve: Once you have accurate records, there are literally hundreds of financial calculations which can be derived from those numbers. Become familiar with numbers bankers use regularly to evaluate your business. 5. Surround yourself with professionals who can help advise you in the complicated task of managing your farm. Farming has become so technologically advanced that it is difficult for one person to be an expert on all aspects of the farm. If you can t KNOW IT ALL, the next best thing is to rely on someone who concentrates their knowledge in one or two specific areas. 4

off faster: Example: A loan for $100,000 at 9% for 20 years is a $900 per month payment.

5 Two Ways to Reduce Debt Profits Sale of Assets 6. Understand and RESPECT Debt. Pay off extra on your loans whenever possible, even a small extra amount can save lots of interest and get your debt paid off faster: Example: A loan for $100,000 at 9% for 20 years is a $900 per month payment. The total interest you would pay over the course of that loan is 116,000. By simply paying $100 per month more (Or $1000/month) you would pay the loan off 54 months (4.5 years) earlier and save about $30,000. 5

Tax avoidance is not tax evasion Can you be profitable and NEVER pay income taxes?

6 7. You use every legal tax reduction strategy available, but realize that income taxes reflect a positive financial position. Tax avoidance is not tax evasion Can you be profitable and NEVER pay income taxes???????? Tax Planning 8. Set both business and personal goals Set short and long term goals: Prioritize your goals Be patient 6

7 Prepare for significant life changes: Sending kids to college Loss of major labor providers in your operation Retirement or transfer of your farm 9. Manage your risk Buy insurance wisely Market planning Do you have a market? 7

liquidity Principal and interest payments under 20% of gross income Operating Expense ratio under 85% Debt per cow

8 10. Have transition plan which you review and update regularly Everyone should create a will, even if it simply states who should care for your children upon your death Tax laws change regularly Finance Working capital 2 to 1 liquidity Principal and interest payments under 20% of gross income Operating Expense ratio under 85% Debt per cow Up to 7000 for special situations Owner equity equal your age. Do not drop below 30% Cost of production operating/total 8

payment dates Red Flags Taking marketing and production risks that

9 Red Flags High usage of credit card debt (verify with credit bureau) Multiple lenders Frequent requests for extensions of payment dates Red Flags Taking marketing and production risks that are "out-sized" for level of equity capital Low profitability even in "good years 9

Rules of the Road Get efficient before getting bigger You can not grow your way to profits Better is

10 Red Flags Revaluation of livestock, equipment, and land to improve the balance sheet Excessive new equipment Poorly maintained equipment and or farmstead Requests to increase lines of credit Philosophy & Rules of the Road Get efficient before getting bigger You can not grow your way to profits Better is better, Before bigger is better If it grows too fast, then it is a weed Few businesses grow broke paying income taxes 10

Eisenhower Thank you Angie Sullivan Division of

11 Farming looks mighty simple when your plow is a pencil and you re 1000 miles away from a cornfield. Dwight D. Eisenhower Thank you Angie Sullivan Division of Agricultural Development Frank.Friar@Wisconsin.gov

Money Management Curriculum

Module 2: Loans and Credit Cards Money Management Curriculum Module 2: Loans and Credit Cards Project Team: Ruby Ward, Professor, Utah State University Trent Teegerstrom, Associate Director of Tribal Extension,