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Financial Planning with FAST Tools  By Paul N. Ellinger Gary Schnitkey Travis Farley
FAST Tools <ul><li>farmdoc  companion project initiated in 1999 </li></ul><ul><li>Development of 42 spreadsheet-based tool...
Current Resources and Activities <ul><li>45 laptop computer lab </li></ul><ul><li>FAST educator / coordinator  </li></ul><...
Educational Efforts 3 Dimensions Content/ Meeting Type Intended Audience Host(s)
Content: Modules <ul><li>Financial planning </li></ul><ul><li>Crop insurance  </li></ul><ul><li>Grain inventory pricing an...
Audiences Targeted and General <ul><li>Farmers </li></ul><ul><ul><li>General and women via Annie’s project </li></ul></ul>...
Hosts “Getting the right people at the table” <ul><li>Typical Extension Channels </li></ul><ul><li>Farm Bureau </li></ul><...
FAST Tools - Overview farmdoc materials Computerized Decision Aids Financial  Analysis Investment Analysis Loan  Analysis ...
Financial Analysis <ul><li>Appraisal of current financial position </li></ul><ul><li>Balance sheet </li></ul><ul><li>Ratio...
Investment Analysis Assist in measuring the economic returns and  performance  of alternative types of investments. <ul><l...
Loan Analysis <ul><li>Loan amortization </li></ul><ul><li>Loan comparison </li></ul><ul><li>Revolving loan calculator </li...
Farm Management Assist in developing enterprise budgets and  breakeven levels; estimating costs of machinery operations; a...
Grain Marketing and Management Assist in tracking grain inventory and  estimating the costs and returns of grain storage a...
Risk Management Assist in evaluating the impact of farmland lease types  as well as marketing and crop insurance strategie...
Yield and Land Database Utilities Assist in analyzing county-level historical crop yields and land prices and assist with ...
Financial Planning Modules
Day Program <ul><li>Repayment analysis </li></ul><ul><li>Ratio analysis </li></ul><ul><li>Financial Planning </li></ul><ul...
Repayment Capacity <ul><li>Critical for determining and understanding the income needs from the farming operation </li></u...
Repayment Capacity, cont.
Stage 1: Repayment Analysis
Stage 2: Repayment Analysis
For Illinois: Risk Analysis  <ul><li>Enter Budget and Crop Insurance Data </li></ul><ul><li>Based on 31 years of county le...
 
Ratio Calculator <ul><li>Designed to assess financial health through ratio and trend analysis </li></ul><ul><li>Minimum se...
Educational Programs <ul><li>Case study </li></ul><ul><li>Drawbacks and cautions of financial ratios </li></ul><ul><li>Eva...
 
Why Budget? <ul><li>Decision analysis benchmarks </li></ul><ul><ul><li>Cost control </li></ul></ul><ul><ul><li>Marketing <...
Desired Components of a  Financial Plan <ul><li>Focus on projected  profitability  of a plan – not just cash flow </li></u...
Getting Organized <ul><li>Synchronize cash, loan, and inventory balances </li></ul><ul><li>Total cash expenses for 2005  <...
Getting Organized, continued <ul><li>Enterprise cropping plan </li></ul><ul><ul><li>acres  </li></ul></ul><ul><ul><li>shar...
Getting Organized, continued <ul><li>Planned capital purchases </li></ul><ul><ul><li>Expected level and cost of financing ...
Financial Analysis <ul><li>Case Study </li></ul><ul><li>Enter complete set of cash flow information </li></ul><ul><li>Cust...
Financial Planning Attributes <ul><li>Built-in risk parameters </li></ul><ul><li>Quarterly projections </li></ul><ul><ul><...
Financial Planning Demos
Comments and Questions <ul><li>Complimentary CDs  </li></ul><ul><li>Looking for reviewers, partners and ideas </li></ul><u...
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efterstræbte

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  1. 1. Financial Planning with FAST Tools By Paul N. Ellinger Gary Schnitkey Travis Farley
  2. 2. FAST Tools <ul><li>farmdoc companion project initiated in 1999 </li></ul><ul><li>Development of 42 spreadsheet-based tools to aid decisions for producers, lenders, consultants and investors </li></ul><ul><li>Facilitate use, access, distribution of tools and resources through CD and internet distribution </li></ul><ul><ul><li>Quarterly subscription </li></ul></ul><ul><ul><li>farmdoc download </li></ul></ul><ul><ul><li>via workshops </li></ul></ul><ul><li>Approximately, 30,000 CDs produced and another 35,000 downloads </li></ul><ul><li>Increased demand for education and training </li></ul>
  3. 3. Current Resources and Activities <ul><li>45 laptop computer lab </li></ul><ul><li>FAST educator / coordinator </li></ul><ul><li>CD duplication </li></ul><ul><ul><li>internal and cooperate w/other extension programs </li></ul></ul><ul><li>50+ annual meetings in Illinois / integrated FAST </li></ul><ul><ul><li>80% were supported w/RMA </li></ul></ul><ul><li>Teaching modules for each program </li></ul><ul><ul><li>Case studies and examples </li></ul></ul>Theme & Focus Teach Decision Making Integrate and utilize FAST Not just computer training
  4. 4. Educational Efforts 3 Dimensions Content/ Meeting Type Intended Audience Host(s)
  5. 5. Content: Modules <ul><li>Financial planning </li></ul><ul><li>Crop insurance </li></ul><ul><li>Grain inventory pricing and management </li></ul><ul><li>Machinery management </li></ul><ul><li>Land investment and lease analysis </li></ul><ul><li>Enterprise analysis </li></ul>
  6. 6. Audiences Targeted and General <ul><li>Farmers </li></ul><ul><ul><li>General and women via Annie’s project </li></ul></ul><ul><li>Lenders </li></ul><ul><li>FSA </li></ul><ul><li>Farm bureau managers </li></ul><ul><li>College and High School Students </li></ul><ul><li>Educators (train the trainer programs) </li></ul><ul><ul><li>College and Jr College instructors </li></ul></ul><ul><ul><li>Vo-Ag Teachers </li></ul></ul><ul><ul><li>Extension Educators </li></ul></ul><ul><ul><li>State record fieldstaff (Iowa, KY, Illinois and Alabama) </li></ul></ul>
  7. 7. Hosts “Getting the right people at the table” <ul><li>Typical Extension Channels </li></ul><ul><li>Farm Bureau </li></ul><ul><li>Farm Credit System </li></ul><ul><li>Commercial Banks </li></ul><ul><li>Growmark </li></ul><ul><li>State Record Keeping Associations </li></ul>
  8. 8. FAST Tools - Overview farmdoc materials Computerized Decision Aids Financial Analysis Investment Analysis Loan Analysis Farm Management Grain Marketing & Management Risk Management Yield and Land Database Utilities AgMas Crop Insurance Proceedings: Farm Management Financial Management Policy Law and Taxation Grain Marketing
  9. 9. Financial Analysis <ul><li>Appraisal of current financial position </li></ul><ul><li>Balance sheet </li></ul><ul><li>Ratio calculator </li></ul><ul><li>Cash flow planning </li></ul><ul><li>Cash to accrual income approximation </li></ul><ul><li>Estimates of deferred taxes </li></ul><ul><li>Repayment capacity analysis </li></ul><ul><li>Personal financial planning </li></ul><ul><li>Longer-term planning – in development </li></ul><ul><li>Net worth allocation </li></ul>Assist in preparing and interpreting financial information and measuring financial health
  10. 10. Investment Analysis Assist in measuring the economic returns and performance of alternative types of investments. <ul><li>Capital budgeting </li></ul><ul><li>Grain bin analysis </li></ul><ul><li>Land purchase analysis </li></ul><ul><li>Lease versus purchase </li></ul><ul><li>Machinery financing </li></ul><ul><li>MACRS calculator </li></ul><ul><li>Savings calculator </li></ul><ul><li>Time value of money calculator </li></ul>
  11. 11. Loan Analysis <ul><li>Loan amortization </li></ul><ul><li>Loan comparison </li></ul><ul><li>Revolving loan calculator </li></ul>Assist in calculating loan payments and schedules; comparing alternative loans; and measuring the sensitivity of payments to changes in loan parameters
  12. 12. Farm Management Assist in developing enterprise budgets and breakeven levels; estimating costs of machinery operations; and comparing crop insurance and farmland leasing alternatives <ul><li>Break even analysis </li></ul><ul><li>Crop budgeting tool </li></ul><ul><li>Crop insurance calculator </li></ul><ul><li>Enterprise allocation and analysis </li></ul><ul><li>Farmland lease analysis </li></ul><ul><li>Machinery lease analysis </li></ul>
  13. 13. Grain Marketing and Management Assist in tracking grain inventory and estimating the costs and returns of grain storage and delivery <ul><li>Crop storage analysis </li></ul><ul><li>Grain delivery model </li></ul><ul><li>Grain pricing model </li></ul><ul><li>Grain inventory management </li></ul>
  14. 14. Risk Management Assist in evaluating the impact of farmland lease types as well as marketing and crop insurance strategies on revenue and income distributions. <ul><li>Crop insurance historical evaluator </li></ul><ul><li>Farm rent evaluator </li></ul><ul><li>Marketing and crop insurance risk model </li></ul>
  15. 15. Yield and Land Database Utilities Assist in analyzing county-level historical crop yields and land prices and assist with common computations related to soil productivity measures and yield predictions <ul><li>Illinois, Indiana, Iowa crop yield database </li></ul><ul><li>Illinois farmland sales database </li></ul><ul><li>Illinois soil productivity index utilities </li></ul>
  16. 16. Financial Planning Modules
  17. 17. Day Program <ul><li>Repayment analysis </li></ul><ul><li>Ratio analysis </li></ul><ul><li>Financial Planning </li></ul><ul><ul><li>Annual and multi-year </li></ul></ul>
  18. 18. Repayment Capacity <ul><li>Critical for determining and understanding the income needs from the farming operation </li></ul><ul><li>Good discussions regarding family living budgets </li></ul><ul><ul><li>Resources: </li></ul></ul><ul><ul><ul><li>Illinois record keeping data </li></ul></ul></ul><ul><ul><ul><li>Consumer expenditure studies </li></ul></ul></ul><ul><ul><ul><li>www.bls.gov/cex/ </li></ul></ul></ul>
  19. 19. Repayment Capacity, cont.
  20. 20. Stage 1: Repayment Analysis
  21. 21. Stage 2: Repayment Analysis
  22. 22. For Illinois: Risk Analysis <ul><li>Enter Budget and Crop Insurance Data </li></ul><ul><li>Based on 31 years of county level production and price data </li></ul><ul><li>Assess the likelihood of achieving income levels needed </li></ul>
  23. 24. Ratio Calculator <ul><li>Designed to assess financial health through ratio and trend analysis </li></ul><ul><li>Minimum set of data needed to complete the “sweet 16” ratios </li></ul><ul><li>Calculate “scaled” health and trend index for each ratio. </li></ul><ul><li>Store multiple years </li></ul><ul><li>Professional version for multiple customers </li></ul>
  24. 25. Educational Programs <ul><li>Case study </li></ul><ul><li>Drawbacks and cautions of financial ratios </li></ul><ul><li>Evaluate the strong and weak areas (liquidity, profitability, leverage, repayment capacity) </li></ul><ul><li>Assess strategies to improve the various areas </li></ul>
  25. 27. Why Budget? <ul><li>Decision analysis benchmarks </li></ul><ul><ul><li>Cost control </li></ul></ul><ul><ul><li>Marketing </li></ul></ul><ul><ul><li>Identify opportunities </li></ul></ul><ul><ul><li>Contingency planning </li></ul></ul><ul><ul><li>Meet financial goals – discipline </li></ul></ul><ul><ul><li>Managing cash surplus/deficits profitably </li></ul></ul><ul><li>Organization </li></ul><ul><li>Communication </li></ul><ul><li>Monitor performance </li></ul><ul><li>And … my lender wanted one </li></ul>
  26. 28. Desired Components of a Financial Plan <ul><li>Focus on projected profitability of a plan – not just cash flow </li></ul><ul><ul><li>What do we need to break even? </li></ul></ul><ul><ul><li>What cushion do we have to meet debt payments? </li></ul></ul><ul><li>Sensitivity analysis (stress testing) </li></ul><ul><ul><li>Prices </li></ul></ul><ul><ul><li>Production </li></ul></ul><ul><ul><li>Costs </li></ul></ul><ul><ul><li>Interest rates </li></ul></ul><ul><li>Basis of comparison and validation </li></ul><ul><ul><li>Benchmarks </li></ul></ul><ul><ul><li>Previous year comparison </li></ul></ul><ul><ul><li>Comparison to actual </li></ul></ul>
  27. 29. Getting Organized <ul><li>Synchronize cash, loan, and inventory balances </li></ul><ul><li>Total cash expenses for 2005 </li></ul><ul><li>Current inventories </li></ul><ul><ul><li>Units and price </li></ul></ul><ul><li>Status of government payments </li></ul><ul><ul><li>Due from 2005 crop </li></ul></ul><ul><li>Balance and payment schedules for loans </li></ul><ul><ul><li>Interest owed at end of year </li></ul></ul><ul><ul><li>Scheduled payments </li></ul></ul><ul><li>Items prepaid for 2006 crop and payable for 2005 crop at the end of the year </li></ul>
  28. 30. Getting Organized, continued <ul><li>Enterprise cropping plan </li></ul><ul><ul><li>acres </li></ul></ul><ul><ul><li>share of acres </li></ul></ul><ul><ul><li>lease type and share </li></ul></ul><ul><ul><li>expected production </li></ul></ul><ul><ul><li>government payments </li></ul></ul><ul><ul><li>costs per acre </li></ul></ul><ul><li>Crop insurance protection </li></ul><ul><ul><li>Level of yield or revenue protection </li></ul></ul><ul><li>Livestock plan </li></ul><ul><ul><li>Expected production </li></ul></ul><ul><ul><li>Expected sales and purchase price </li></ul></ul><ul><ul><li>Feed costs </li></ul></ul><ul><ul><li>Other livestock expenses </li></ul></ul>
  29. 31. Getting Organized, continued <ul><li>Planned capital purchases </li></ul><ul><ul><li>Expected level and cost of financing </li></ul></ul><ul><li>Nonfarm sources and uses of cash </li></ul><ul><ul><li>Wages </li></ul></ul><ul><ul><li>Business income/expenses </li></ul></ul><ul><ul><li>Family withdrawals </li></ul></ul><ul><li>Before visiting lender </li></ul><ul><ul><li>Check if lender is using suggested commodity prices </li></ul></ul><ul><ul><li>View Consumer Credit Report: See handout </li></ul></ul>
  30. 32. Financial Analysis <ul><li>Case Study </li></ul><ul><li>Enter complete set of cash flow information </li></ul><ul><li>Customize budget entries per site location </li></ul>
  31. 33. Financial Planning Attributes <ul><li>Built-in risk parameters </li></ul><ul><li>Quarterly projections </li></ul><ul><ul><li>Cash flow </li></ul></ul><ul><ul><li>Income statements </li></ul></ul><ul><ul><li>Commodity sensitivity and break even </li></ul></ul><ul><ul><li>Previous year comparison </li></ul></ul><ul><ul><li>Scenario analysis </li></ul></ul>
  32. 34. Financial Planning Demos
  33. 35. Comments and Questions <ul><li>Complimentary CDs </li></ul><ul><li>Looking for reviewers, partners and ideas </li></ul><ul><li>Cooperate in CD production </li></ul><ul><li>Facilitate your programs </li></ul>
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