2014 Business of Farming Conference: Business Cost Planning From an Aerial Perspective

www.mountainbizworks.org

ASAP Business Farming Conference 2014

Business Cost Planning from an Aerial Perspec:ve

Annie Price of Mountain BizWorks [email protected]


Introduc;on to Today’s Workshop

•  Conference Opportuni:es •  Aerial Perspec:ve •  The Twin Engines of the Business Planning Process

•  Compile Ques:ons for Lunch Time Consultant Sessions

•  Sources of Informa:on and Addi:onal Resources


Who’s here today? •  What is your name? •  What is the name and loca:on of your farm business?

•  What products and/or services do you/will you offer?

•  What is something you currently need help with? •  Please share your email address if you would like to learn about training or lending opportuni:es at Mountain BizWorks.


• Costs to Consider -‐Personal Cash Flow

-‐Start-‐up -‐Overhead -‐Unit and Variable Costs -‐Gross and Net Profit

• Determining a Break-‐Even Point •  Introduc:on to Cash Flow


Personal Cash Flow •  A detailed look at how income is currently flowing in and out of your household and accounts for all earnings and expenditures.

•  Use this informa:on to determine what you need your farm to pay you. Ex: family living expenses-‐non farm home income + savings goal = es:mated farm income goal 3000-‐1500+500=2000

•  Resources for budget assistance: – Mint.com-‐organizes and categorizes your money and helps you create and meet your financial goals

–  OnTrack of WNC (828) 255-‐5166 or ontrackwnc.org


Start-‐Up and Expansion Costs

•  Defini:on: All of the costs necessary to make your first sale. They are typically items that do not have to be replaced on a regular basis. For already exis:ng businesses, these are called expansion costs.

•  Picture a “grand opening” or grand reopening for your business. What do you need to get there?


Overhead Costs

•  Defini:on: Costs that have to be paid each month whether or not any sales are made. They are also called “fixed costs” because they ofen stay about the same.

•  What are your current overhead costs and how will these shif with some of your current goals? Take a look at the resource sheet to begin brainstorming what you need to look into.


Variable Costs

•  Defini:on: Expenses that are directly linked to the unit of sale. Everything that goes into the product is considered a variable cost.

Also known as “Cost of Goods Sold”, “COGS”, or “Unit Costs”.


Gross vs. Net Profit

•  Gross profit: A company’s revenue minus its cost of goods sold. Also referred to as “gross margin” or “gross income”.

•  Net profit: A company’s revenue afer ALL expenses have been paid.


Break-‐Even Point

•  Monthly Overhead and Capital Expenditures/Gross Profit per Unit of Sale

Steps in this process: 1) Es:mate your monthly overhead and capital expenditures 2) Determine your Unit of Sale price 3) Subtract any variable costs from your unit 4) Divide your Monthly Overhead and Expenditure total by your gross profit per unit


Mul;-‐Unit Break-‐Even Point

•  Determine total overhead cost for the business •  Determine percentage each line of business is responsible for and typical unit cost for each line of business.

•  Determine overhead cost each line is responsible for by mul:plying percentage by total overhead

•  Divide each overhead by the gross profit for that unit.


3 Key Financial Documents •  Profit and Loss Statement •  Balance Sheet •  Cash Flow

* Schedule an appointment with an accountant to gain a deeper understanding of these and learn what you will need to provide for taxes.


Profit and Loss Statement

A financial statement that summarizes the revenues, costs and expenses incurred during a specific period of :me -‐ usually a fiscal quarter or year. These records show the ability of a company to generate profit by increasing revenue and reducing costs. The P&L statement is also known as a "statement of profit and loss", an "income statement" or an "income and expense statement".


Balance Sheet

The balance sheet presents a company's financial posi:on at the end of a specified date. Some describe the balance sheet as a "snapshot" of the company's financial posi:on at a point (a moment or an instant) in :me.


Cash Flow A statement that expresses a business's results or plans in terms of how cash flows in and out of the business. It is a key tool in assessing the health of your business and helping with both assessment and forecas:ng. It helps answer the following cri:cal ques:ons: •  How much cash is on hand at the start of the month? •  How much cash will it bring in? •  How much cash will be spent? •  How much will be gained or lost? •  How much will be on hand at the end of the month?


5 C’s of Lending •  Cash Flow-‐ a detailed es:mate of how cash flows in and out of the business.

•  Collateral-‐the assets the borrower pledges in case of a repayment issue.

•  Character-‐reference checks, credit report review, and explana:on of a prior problem.

•  Capital-‐ also known as equity or net worth. This can be sweat, money, and/or equipment that the borrower is punng into the business.

•  Capacity-‐what is the borrower’s experience and/or background in their business?


To find out more about how

Mountain BizWorks can help you move forward with your small business,

contact Zuri at [email protected] or (828) 253-‐2834

Mountain BizWorks’ FARE of the Carolinas is supported by the Beginning Farmer and Rancher Development Program of the Na;onal Ins;tute of Food and Agriculture, USDA, Grant # 2010-‐49400-‐21817.

2014 Business of Farming Conference: Business Cost Planning From an Aerial Perspective

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Transcript of 2014 Business of Farming Conference: Business Cost Planning From an Aerial Perspective