Business Planning using Cash Flow Analysis. Gary Matteson, Farm Credit Council

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1 Business Planning using Cash Flow Analysis Gary Matteson, Farm Credit Council

3 Looking to the Future What are your skills? What is your tolerance for risk? What is your capacity to deal with ambiguity? What is your capacity to lead others? What is your capacity for self-discipline?

4 What is your capacity to gather information?

5 define success acres tractors cows gross sales yield/acre net profit

6 define success enough net profit to meet your goals for your family and your business

7 know your business Plan to succeed, plan to be happy Tell your story in a business plan A budget is a plan in numbers Plan for contingencies

14 The 5-Line Income Statement Historical Dollars % of Sales Sales (total income) $367, % - Cost of Goods Sold: (variable costs) $312,600 85% = Gross Margin: $54,600 15% - Overhead(fixed costs) $7,800 2% = Profit (Net Margin) $46,800 13%

income) $367,200 100% - Cost of Goods Sold: (variable costs) $312,600 85% = Gross

15 Showing Annual Business Results This 5-Line Income Statement Becomes the basis of this Cash Flow Analysis Spreadsheet Historical Dollars % of Sales Sales (total income) $367, % - Cost of Goods Sold: (variable costs) $312,600 85% = Gross Margin: $54,600 15% - Overhead(fixed costs) $7,800 2% = Profit (Net Margin) $46,800 13%

16 The Concept of Cash Flow Budgeting

18 Grass Fed Cash Flow Analysis Summary of Annual Results from Spreadsheet (the 5-Line Income Statement) Annual GROSS RETURNS PER 200 HEAD also called Total Sales, Total Income: $ 367, As % Total Sales 100% A. TOTAL VARIABLE COSTS also called Cost of Goods Sold or COGS $ 312, % GROSS MARGIN (Total Sales-Variable Costs=Gross Margin) 15% 15% B. TOTAL FIXED COSTS or Overhead: $ 7, % NET MARGIN (Sales-Variable Costs-Fixed Costs=Net Return) Also called net profit $46, %

19 Grass Fed Cash Flow Analysis Monthly Results Spreadsheet As % Total GROSS RETURNS PER 200 HEAD also called Total Sales, Total Income: $ - $ - $ - $ - $ 36, $ 73, $ 73, $ - $ - $ - $ 73, $ 110, $ Sales 367, % Jan Feb Mar April May June July Aug Sept Oct Nov Dec Annual A. TOTAL VARIABLE COSTS also called Cost of Goods Sold or COGS $ 116, $ 9, $ 9, $ 7, $ 7, $ 114, $ 7, $ 7, $ 7, $ 7, $ 9, $ 9, $ 312, % GROSS MARGIN (Total Sales-Variable Costs=Gross Margin) This is based on results from previous year of operation, or it is estimated from a benchmark 15% 15% B. TOTAL FIXED COSTS or Overhead: $ $ $ $ $ $ $ $ $ $ $ $ $ 7, % NET MARGIN (Sales-Variable Costs-Fixed Costs=Net Return) Also called net profit or net income in dollars, or net profit margin when described as a percentage $46, % E. MONTHLY CASH FLOW (D-C) $ (116,683.33) $ (9,683.33) $ (9,683.33) $ (8,283.33) $ 28, $ (41,843.33) $ 65, $ (8,283.33) $ (8,283.33) $ (8,283.33) $ 63, $ 100, $ 46, G. Beginning Cash (Checking Account) $175, $58, $48, $38, $30, $59, $17, $82, $74, $65, $57, $121, H. Ending Cash (Checking Account) $58, $48, $38, $30, $59, $17, $82, $74, $65, $57, $121, $221, Cash flows are highlighted in yellow

20 Grass Fed Monthly Cash Flow Analysis GROSS RETURNS PER 200 HEAD also called Total Sales, Total Income: $ - $ - $ - $ - $ 36, $ 73, $ 73, $ - $ - $ - $ 73, $ 110, $ 367, VARIABLE COSTS PER 200 HEAD: Jan Feb Mar April May June July Aug Sept Oct Nov Dec Annual Purchase Price $ 105, $ 105, $ 210, Transport $ 2, $ 2, $ 4, Summer Pasture $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 33, Winter Hay - Forage $ 6, $ 6, $ 6, $ 6, $ 6, $ 31, Other Feed $ $ $ $ $ $ $ $ $ $ $ $ $ 6, Protein & Mineral $ $ $ $ $ $ $ $ $ $ $ $ $ 4, Hired Labor $ $ $ $ $ $ $ $ $ $ $ $ $ 4, Veterinary & Supplies $ $ $ $ $ $ $ $ $ $ $ $ $ 3, Utilities, Fuel, Oil $ $ $ $ $ $ $ $ $ $ $ $ $ 7, Facility & Equip Repair $ $ $ $ $ $ $ $ $ $ $ $ $ 2, Breeding Charge $ - Marketing $ $ $ $ $ $ $ $ $ $ $ $ $ 4, Misc $ $ $ $ $ $ $ $ $ $ $ $ $ 2, Interest $ $ $ $ $ $ $ $ $ $ $ $ $ 2, A. TOTAL VARIABLE COSTS $ 116, $ 9, $ 9, $ 7, $ 7, $ 114, $ 7, $ 7, $ 7, $ 7, $ 9, $ 9, $ 312, % GROSS MARGIN (Total Sales-Variable Costs=Gross Margin) This is based on results from previous year of operation, or it is estimated from a benchmark 15% FIXED COSTS PER 200 HEAD: Depreciation Interest $ $ $ $ $ $ $ $ $ $ $ $ $ 2, Insurance $ $ $ $ $ $ $ $ $ $ $ $ $ 1, Death Loss $ $ $ $ $ $ $ $ $ $ $ $ $ 4, B. TOTAL FIXED COSTS or Overhead: $ $ $ $ $ $ $ $ $ $ $ $ $ 7, % NET MARGIN (Sales-Variable Costs-Fixed Costs=Net Return) Also called net profit or net income in dollars, or net profit margin when described as a percentage $46, % As % Total Sales 100% C. TOTAL COSTS PER 200 HEAD: (A+B) $ 116, $ 9, $ 9, $ 8, $ 8, $ 115, $ 8, $ 8, $ 8, $ 8, $ 9, $ 9, $ 320, GROSS RETURNS PER 200 HEAD: Jan Feb Mar April May June July Aug Sept Oct Nov Dec Total Income Steers $ 36, $ 73, $ 73, $ 73, $ 110, $ 367, Heifers $ - Cull Cows $ - Cull Heifers $ - D. GROSS RETURNS/200 HEAD (Sales): $ - $ - $ - $ - $ 36, $ 73, $ 73, $ - $ - $ - $ 73, $ 110, $ 367, E. MONTHLY CASH FLOW (D-C) $ (116,683.33) $ (9,683.33) $ (9,683.33) $ (8,283.33) $ 28, $ (41,843.33) $ 65, $ (8,283.33) $ (8,283.33) $ (8,283.33) $ 63, $ 100, $ 46, G. Beginning Cash (Checking Account) $175, $58, $48, $38, $30, $59, $17, $82, $74, $65, $57, $121, H. Ending Cash (Checking Account) $58, $48, $38, $30, $59, $17, $82, $74, $65, $57, $121, $221,800.00

22 how quickly can you make money? Goal of producing cash in 6 months Budget to accomplish goal Pay your bills Family living expenses

23 Managing inventory/expense the time factor months 1-2 months

24 plan your business Record keeping is required for taxes Ultimate goal is to manage from records Need up-to-date and accurate records Create budget with expectations and measurable results

25 starting in the beef business Like any small business: income expenses cash flow

26 things to do before starting Save money Protect credit rating Gain experience Network Plan

29 Livestock a 3, 6, 12, 24, 30 month cycle Riding it out to succeed.

30 Cycle for cash flow

31 Business Cycle ~ Cash Flow Cycle Plan, prepare avoid surprises, achieve success

32 Helpful Resource Links

34 manage your business Three basic business skills: 1. Financial 2. Production 3. Marketing If you are lucky you have two of these skills. Partner with or hire the skill you don t have.

35 .

36 Making the decision Using cost analysis Tyler s Tip Top Tomatoes Irrigation Project Cost Analysis Total Cost of Irrigation System $ 5,000 Expected Economic Life (how long it will last) 5 Annual Depreciation Cost $ 1,000 Annual Budget for Irrigation System Increase (decrease) Revenue (expect 4% more crop production) $ 8,000 Multiply by Gross Margin (same as on the One Page Plan) 40% Additional Gross Margin $ 3200 Annual Depreciation Cost $ (1,000) Interest Expense $ (100) Operating Costs Utilities $ (150) Labor $ (250) Net Income $ 1,700 Return On Investment 34%

Beef Cow/Calf, Projected Budget for Calves Sold in 2015, South Missouri

Beef Cow/Calf, Projected Budget for Calves Sold in 2015, South Missouri Fall 14 Spring 15 Calving Calving Calf crop, % weaned 88% 85% Steer calf sales: 580 lbs. @ $250/cwt. x 85% x 1/2 -- $ 616.25 580