Basic Financial Planning for Vegetable Crops by pfh17972

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									Basic Financial Planning for
     Vegetable Crops

          Alice Rhea
        Area Specialist
       Farm Management
       Think About This…
Until I am measured, I am not known.
Yet how you miss me when I have flown.

What am I?

       The Real World
• Businesses with fewer than 20
  employees have only a 37% chance of
  surviving 4 years and only a 9%
  chance of surviving 10 years.
  – Dunn & Bradstreet
• Restaurants only have a 20% chance
  of surviving 2 years.
        The Real World
• Of failed businesses, only 10% close
  involuntarily due to bankruptcy.
• The remaining 90% close due to:
  – Business was not successful
  – Did not provide desired level of income

    • Entrepreneur Weekly, 1996
       New Businesses
• About 1 million Americans each year
  go into business for themselves.
• After 2 years, 90% of new businesses
• Only 80% of all businesses have a
  business plan.
• Having a business plan gives
  businesses a 90% better chance of
    • SCORE (Service Corps of Retired
Development of a business plan should
be a basic management practice for a
new business venture.

 No one plans to fail.
 But many fail to plan.
Improving Chances for Success
     with a Business Plan
• Proves the plan will work “on paper”
• Serves as a roadmap and compass for
  business development and direction
• Helps identify potential business
• Evaluates need and potential payback
  of borrowed money
• Effective communication tool
      Setting Goals and
• What are you trying to achieve?
  – You are more likely to succeed when you
    know what you are trying to accomplish.
• Goals and objectives are not final and
  – Change with changing conditions.
        Setting Goals and
•   Income
•   Add value to property
•   Tax advantages
•   Enjoyment
•   It is important that you pursue an
    enterprise that interests you. If not,
    the hard work, in sometimes
    unfavorable conditions, is going to get
    very old.
 Three Phases of Business Startup

• Idea Phase – “What IF”
  – Explore the possibility
• Feasibility Phase – “Can I”
  – Determines whether the idea can actually
    be accomplished
• Business Plan Phase – “Can Do”
  – Written plan of action; difficult to prepare
    (many try to do before feasibility phase)
  – Ongoing process; must be kept current
Questions to Ask Yourself
•   What business am I in?
•   What makes my business unique?
•   Why do I want to be in business?
•   What do I like to do with my time?
•   Who are my customers?
•   How much time do I have?
•   Who is my competition?
What Should My Business Plan
• Executive Summary        • Marketing Plan
• Description of the          – Strategy Goals/Strategy
  Business                    – Market Analysis
  –   Products or Services    – Customer Service
  –   Location             • Financial Data
  –   Legal Structure         – Pro Forma Cash Flow
  –   Operation Procedures      Statements
  –   Personnel               – Balance Sheet
  –   Accounting & Legal      – Profit/Loss Statement
  –   Insurance               – Break-even Analysis
                              – Projection Assumptions
       Legal Structures
• Sole Proprietorship – owned by one
  – Advantages: Control of one owner;
    Flexibility; Sole ownership of profits
  – Disadvantages: Unlimited liability; Less
    available capital compared to other
    types of business organizations
      Legal Structures
• Partnership – Exists between 2 or
  more persons (general and/or limited
  – Advantages: Direct rewards; Growth and
    performance facilitated; Flexibility
  – Disadvantages: Unlimited liability of
    general partners; Liable for actions of
    other partners
       Legal Structures
• Corporation – Distinct legal entity,
  distinct from the individuals who own
  – Advantages: Limited liability of
    shareholders; Stability and relative
    permanence of existence
  – Disadvantages: Formation is expensive;
    Extensive government regulations and
    required local, state, and federal reports
      Legal Structures
• Limited Liability Company (LLC) –
  Provides treatment similar to
  partnership and corporation
  – Advantages: Separate legal existence;
    Members liability limited to fixed
    amount of investment
  – Disadvantages: New legal entity; Ease of
  If you can’t make a profit
with a pencil, you can’t make a
      profit with a plow.
      Basic Considerations
• Enterprise Feasibility
  – Climate, soils, water, potential varieties,
    insects, disease, growing season
• Market Factors
  –   Clearly defined product
  –   Demand
  –   Transportation
  –   Competitors
  –   Expected Sales Volume
Production Considerations
• Buildings, machinery, equipment,
  management & labor requirements
• Minimum/Maximum production (yield)
• Acquiring capital to establish
• Annual operating funds needed
Profitability Considerations
•   Impact on existing enterprises
•   Complementary or supplementary
•   Competition for resources
•   Affect on cash flow for business
    Risk Considerations
• Impact on farm’s overall risk
• Affect of resource reallocation and
  investment of additional resources
Miscellaneous Considerations
 • Management skills and time required
 • Legal restrictions, regulations,
 • Special record-keeping
 • Affect on off-farm employment
 Marketing Your Product
• Pick Your Own (PYO)
  – Offers greatest potential savings to
    both farmer & consumer
  – Consumers may need close supervision
  – Prices usually lowest
  – Consumer selection
  – Little harvesting & sometimes marketing
  – Not for all fruits & vegetables
 Marketing Your Product
• Roadside stands & markets
  – Generally stay open longer seasons and
    offer wider variety
  – Location, Location, Location
  – Eliminate the “middleman”
  – Additional operating costs
  – Potential economies of scale
 Marketing Your Product
• Farmers’ Market
  –   Located within or near urban centers
  –   Farmers usually pay a fee
  –   Lower prices than grocery stores
  –   Wide selection
• Community Supported Agriculture
  – Subscription farming
   Potential Goals for your
• Tracking employee time per job
• Determining which area of the
  company is more profitable
• Increasing
• Measuring
• Analyzing
• Eliminating past due accounts
            Do You…
• keep records?
• know which enterprise are profitable?
• know costs for each job?
• know the percent of sales for a
  particular plant?
• know individual cost of production per
• Why should we keep records?
  –   Proof
  –   Decision Aids
  –   Institutional Requirements
  –   Environmental Regulations
Record-Keeping vs. Record
• Record-Keeping
  – Filing
  – Categorizing
  – Maintaining
• Record Analysis
  – Evaluating
    • Make informed decisions
   Financial Record-Keeping
 • What are the methods?
• Hand                      • Computer
  – Low initial out-of        – Higher initial out-of-
    pocket expense              pocket expense
  – Easy to implement         – May require
  – Time-consuming              significant amount of
  – More opportunities to
    make mistakes             – Fast
  – Limited in extent of      – Accurate
    analysis without time     – Can be a powerful
    and effort                  analysis tool
  Maintaining Financial
Records Utilizing Quicken
     & QuickBooks
• Record-Keeping Workshops
  – QuickBooks
  – Quicken
• Individual Help
• Computer Applications
  – Spreadsheets
     • Microsoft Excel
     • Corel Quattro Pro
  – Other computer programs

 Improved Records allow for improved decisions.
   Quicken or QuickBooks
• Account Registers
  – Categorizes and classifies transactions when
    they are posted
• Comprehensive reports and graphs
  – Accounts payable or receivable
  – Balance sheets
  – Profit and Loss statements
• Check writing features
  – Employee payroll
Can show you instantly how much money you have and where it
    QuickBooks Applications
•   Payroll
•   Class Tracking
•   Invoicing
•   Time Tracking per Job
•   Timesheets
•   Items
•   Inventory
        Reading Reports
•   Profit & Loss
•   Profit & Loss by Class
•   Balance Sheet
•   Inventory Reports
•   Item Price List
•   Sales by Item Summary
•   Tax Forms & Reports
 Comments from Clientele
• … “better opportunity to analyze
  profit and loss with more confidence
  to make more profitable decisions.”
• “We will no longer need such
  extensive CPA services.”
• “Will greatly impact profits and allow
  me to increase customer base.”
• “…will be able to track a large
   Ten Mistakes to Avoid
• Start a business with partners and
  associates with no formal written
  business agreements.
• Failure to have a formal business plan.
• Insufficient financial support.
• Failure to consider competition.
• Use do-it-yourself legal and
  accounting help.
    Ten Mistakes To Avoid
• No experience.
• Hire the wrong people.
• Wrong location.
• Start a business where there is little
• A dislike of sales.
Business Operation Questions
 • Where am I?
 • Where do I want to be?
 • How can I best get there?
     Where to Get Help
• The University of Tennessee
  – MANAGE Program
    • Lends more toward production agriculture
       – Hay production
       – Fruit & Vegetable production
       – Breeding & colt sales
  – Center for Profitable Agriculture
    • Value-added
    • Agri-tainment
  UT Extension Contacts
• County Extension Office
  – Area Farm Management Specialist
    serves each county
• State Extension Website
• Center for Profitable Agriculture
• SCORE, Knoxville Chapter
• Small Business Administration
Navigating, and

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