An NGFN Webinar. FINANCIAL FUNDAMENTALS FOR FOOD HUBS, PART 3: THE INCOME STATEMENT (P&L) March 7, 2017

Transcription

1 An NGFN Webinar FINANCIAL FUNDAMENTALS FOR FOOD HUBS, PART 3: THE INCOME STATEMENT (P&L) March 7, 2017

2 Presentation Outline Welcome Wallace Center at Winrock International The Income Statement Questions and Answers Upcoming Sessions

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4 Presentation Outline Welcome The Income Statement Gary Matteson, Farm Credit Council Erin Pirro, Farm Credit East Questions and Answers Upcoming Sessions

5 Erin Pirro Farm Business Consultant The Income Statement Gary Matteson VP/YBS Farmer Programs and Outreach aka Profit and Loss Statement

6 Typical Income Statement Sales - Expenses Profit Sales -Cost of Goods Sold Gross Margin -Overhead Expenses Profit

7 Why are Profits Important? Pizza and beer Building and equipment updates Growth and expansion Generational transfers Savings and retirement accounts Makes loan officers happy American pride and a winning team So you ll want in!

8 Why this chart of accounts? Know what s making you money/what s not Know your costs of production Know your gross margin Make GOOD decisions quickly Know what it will take to cover the added overhead Are operations on target? Decide WHAT changes to make and when

9 A Manager s Income Statement Sales 100% Cost of Goods/Production - 86% Gross Margin 14% Overhead - 12% Net Income 2% * actual results from top 25% of food hub benchmark

10 Income Sales (by department) Processing Income Misc. income Delivery/Trucking Brokering Membership Fees Less discounts, returns

11 COGS/COP/Selling Costs Cost by department (no matter if you grow it or buy it) match these to sales categories Labor Packaging Merchant fees Delivery costs: delivery labor gas/fuel parking/tolls *COGS = Cost of Goods Sold COP = Cost of Production

12 By Department For Example: Sale of proteins compared to cost of proteins Sales of produce compared to the cost of produce This works universally! purchased - produced - processed - brokered Why? Figure % gross margin Is the product contributing to overhead and profit? Is the product carrying its own weight? Decide on future allocations

13 Beware of Not enough detail Sales as a category Mixed dimensions Farmers Market Income (WHERE) Wholesale (HOW) Greens (WHAT) Offsets Discounts - what was discounted? Credits/Returns what was returned? Reimbursements reduce your true cost (are not income)

14 G & E s Food Hub Income Statement For the Year Ended December 31, 2016 Income continued Produce Sales $823,000 Protein Sales 143,000 Selling Costs TOTAL INCOME $ 966,000 Sales/delivery labor $55,000 Merchant fees 12,000 Product Costs (COGS/COP) Total Selling Costs $67,000 Purchased Produce $275,000 7% Fertilizers and Lime 3,000 Freight and Trucking 10,000 GROSS MARGIN $222,000 Gasoline and Fuel 45,000 23% Vegetable Production Labor 187,000 Seeds and Plants 25,000 Total Produce Costs 545,000 Protein Purchases 132,000 TOTAL COST OF PRODUCT $677,000 70% Produce Department Performance Produce Sales $823,000 - Produce Costs $545,000 = GM Produce $278,000 GM % Produce 34%

15 G & E s Food Hub Income Statement For the Year Ended December 31, 2016 Income continued Produce Sales $823,000 Protein Sales 143,000 Selling Costs TOTAL INCOME $966,000 Sales/delivery labor $55,000 Merchant fees 12,000 Product Costs (COGS/COP) Total Selling Costs $67,000 Purchased Produce $275,000 7% Fertilizers and Lime 3,000 Freight and Trucking 10,000 GROSS MARGIN $222,000 Gasoline and Fuel 45,000 23% Vegetable Production Labor 187,000 Seeds and Plants 25,000 Total Produce Costs 545,000 Protein Purchases 132,000 TOTAL COST OF PRODUCT $677,000 70% Protein Department Performance Protein Sales $143,000 - Protein Costs $132,000 = GM Protein $11,000 GM % Protein 8%

16 Overhead costs The DIRTI 5 Depreciation, Interest, Repairs, Taxes, Insurance Administrative Labor Marketing Professional fees Rent Utilities Miscellaneous Expenses: permits, bank charges, dues, etc.

17 G & E s Food Hub Income Statement For the Year Ended December 31, 2016 Income continued Produce Sales $823,000 Protein Sales 143,000 GROSS MARGIN $222,000 TOTAL INCOME $966,000 Overhead (Fixed) Expenses Variable Product Costs (COGS/COP) Advertising/Trade Shows $32,000 Produce Costs Utilities 60,000 Purchased Produce $275,000 Repairs and Maintenance 33,000 Fertilizers and Lime 3,000 Interest 12,000 Freight and Trucking 10,000 Depreciation 25,000 Gasoline and Fuel 45,000 Insurance 13,000 Vegetable Production Labor 187,000 Property Taxes 8,000 Seeds and Plants 25,000 Other Expenses 14,000 Total Produce Costs 545,000 TOTAL OVERHEAD EXPENSES $197,000 Protein Purchases 132,000 TOTAL COST OF PRODUCT $677,000 NET OPERATING MARGIN $25,000 Selling Costs Sales/delivery labor $55,000 Merchant fees 12,000 Total Selling Costs $67,000

18 Five Line for Our Food Hub Sales $966, % Variable (COGS/COP/Selling) $744,000-77% Gross Margin $222,000 23% Fixed (OH) $197,000-20% Net Operating Margin $25,000 3%

19 MORE for Our Food Hub * If you can separate selling costs, do it! Sales $966, % - COGS/COP $677,000-70% - Selling Costs $67,000-7% Gross Margin $222,000 23% Fixed (OH) $197,000-20% Net Operating Margin $25,000 3%

20 Other Income/Other Expenses Grants Contributions Other Enterprises Program Support Expense Business Income Taxes Other Enterprise Expenses

21 The Bottom Line Net Operating Margin Calculated from Business Income and Expenses (including COGS/COP/Overhead) Net Margin Calculated from Net Operating Margin AND Other Income/Other Expenses

22 Income Statement vs. Tax Return Is a schedule C/F/1065/990 an income statement? What did you tell your tax preparer?

23 Income Statement: Cash vs. Accrual Cash basis The bookkeeping practice of recording sales and expenses only when cash is actually received or paid out. Accrual basis The most commonly used accounting method, which reports income when earned and expenses when incurred. Do we have accurate Balance Sheets surrounding the income statement?

24 G & E s Food Hub Balance Sheets - Fair Market Value As of December 31, 2015 and December 31, Current Assets Current Liabilities Cash 58,000 31,000 Accounts Payable 15,000 8,000 Accounts Receivable 65,000 8,000 Accrued Expenses 10,000 0 Inventory 190, ,000 Operating Loan 100, ,000 Supplies 46,000 41,000 Current Portion of IT Loans 8,000 15,000 Prepaid Expenses 5,000 16,000 Current Portion of LT Loans 50,000 50,000 Other Current Assets 3,000 - TOTAL CURRENT ASSETS 367, ,000 TOTAL CURRENT LIABILITIES 183, ,000 Match income and expenses to year EARNED/INCURRED: Accounts Receivable (A/R) went up, so add $57k income Prepaids went down (you used them up) so add $11k expense Accounts Payable (A/P) went up (you used the product) so add $7k expense Need to know what these were for!

25 Is that your final answer? Protein Department Performance Cash Adjustments Accrual Protein Sales $143,000 + $57,000 A/R $200,000 - Protein Costs $132,000 + $7,000 A/P $139,000 = GM Protein $11,000 $61,000 GM % Protein 8% 30%

26 Business Work Review your P/L Put it in 5-line format Calculate GM EXTRA CREDIT: calculate GM by department to Gary by 8am 3/9

27 Questions and Answers Erin Pirro Farm Credit East Gary Matteson Farm Credit Council Jeff Farbman Wallace Center at Winrock International

28 Financials for Food Hubs All Sessions Start at Noon ET Tue 2/21 Introduction and the Common Chart of Accounts Tue 2/28 The Balance Sheet How and Why Thu 3/2 Office Hours : Balance Sheet Tue 3/7 The Profit and Loss Statement How and Why Thu 3/9 Office Hours: Profit and Loss Statement Tue 3/14 The Cash Flow Statement How and Why Thu 3/16 Office Hours: Cash Flow Tue 3/21 Putting it all together Managing Your Business Using Finances Wed 3/22 Office Hours: Putting it all together

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