2016 business of farming conference: farm financials

Farm FinancialsBarry Gupton – Mountain BizworksPatrick Doran – Mountain Bizworks

Emeralda Sandoval – Del Valle Fresh, Inc.

Business Finance Decision Making

• Record Keeping / Accounting

• Analysis:Financial StatementsBusiness Model

Purposes of Record Keeping?

Accurate & organized records Good Information Informed decision making improved performance

Financial Statements• Profit and Loss (P&L) aka Income Statement• Profitability (Sales – Expense = Profit)

• Balance Sheet• Business Value (Assets – Liabilities = Owner Equity)

• Statement of Cash Flows• Budgeting (Cash In – Cash Out = Cash Balance)

Business Model

Business Inputs Outputs

Resources into business Products/Services Sold

Performance/Success = Difference between Outputs and Inputs

Business Model with P&L Statement• Time Period• P&L equation:

Sales- COGS (Variable Expenses) Gross Profit- Fixed Expenses (Overhead) Net Income (Net Profit)

Types of Expenses• Costs of Goods Sold (COGS)• Costs consumed with each unit of production

• Fixed Expenses• Overhead, often monthly types of expenses

• Start-up expenses• One time expenses needed before business can open• Start-up expenses and assets should be allocated into depreciation expenses

Financial Business ModelStrategic Decisions• Pricing• Volume• Costs

Break Even Analysis • Profitability analysis of business model• Types of B.E.P. Analysis:• Volume• Price• Gross Revenue

B.E.P. Volume

• Time Period (annual, monthly etc.)

• Let’s us know volume we need to sell in order to break even

• Equation:

Fixed Costs / Gross Profit per unit(Price per unit/COGS per

unit) = BEP volume

BEP Volume ExampleGupton Goat Dairy Annual BEP volume analysis• Total annual Fixed Costs$300 - Fencing, Barn, Goat Assets Depreciation $500 – Supplies (medicine, minerals, repairs, hay) • Variable Costs per ½ gallon milk$1.50 – organic feed$ 1.00 – packaging, labeling• Price per ½ gallon milk - $10

BEP Volume Example• Fixed Costs / Gross Profit per unit(Price per unit/COGS per unit) = BEP

volume

• $800 / $7.50 ($10-$2.50) = 107 ½ gallons annually• I have 2 goats that produce for 5 months • Estimated production - 300 gallons

BEP Price• Used to determine what price would = break even profitability

• Useful when production or sales volume is known

• Fixed Expenses + volume x COGS per unit / volume = Break Even Price

BEP Price Example

• Fixed Expenses + (volume x COGS per unit) / volume = Break Even Price

• $800 + $750(300x$2.50) / 300 = $5.17 per gallon

• Profit = $4.83 ($10-$5.17) x 300 = $1449

Business Model

Business Inputs Outputs

Resources into business Products/Services Sold

Financial: $ Expenses/ Costs $ SalesNon-Financial:

Owner Labor and time Non $ personal benefits “free food” Effort, personal risk Community impactLand, other assets Environmental impact

Analyzing the Business Model • Take into consideration all business inputs and outputs

• Looking at just one non financial input:

1 hour of my time per half gallon for milking, packaging and distribution

Profit of $1449/300 hours = $4.83/hr.

• Barry Gupton – barry@mountainbizworks.org