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

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  • 1. ASAP  Business  Farming   Conference  2014   Business  Cost  Planning     from  an  Aerial  Perspec:ve     Annie  Price  of  Mountain  BizWorks   annie@mountainbizworks.org   www.mountainbizworks.org  
  • 2. www.mountainbizworks.org  
  • 3. 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   www.mountainbizworks.org  
  • 4. 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.   www.mountainbizworks.org  
  • 5.     •  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   www.mountainbizworks.org  
  • 6. 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   www.mountainbizworks.org  
  • 7. 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?     www.mountainbizworks.org  
  • 8. 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.     www.mountainbizworks.org  
  • 9. 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”.     www.mountainbizworks.org  
  • 10. 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.   www.mountainbizworks.org  
  • 11. 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   www.mountainbizworks.org  
  • 12. 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.   www.mountainbizworks.org  
  • 13. 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.   www.mountainbizworks.org  
  • 14. 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".       www.mountainbizworks.org  
  • 15. 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.       www.mountainbizworks.org  
  • 16. 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?     www.mountainbizworks.org  
  • 17. 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?   www.mountainbizworks.org  
  • 18.     To  find  out  more  about  how     Mountain  BizWorks  can  help  you     move  forward  with  your  small  business,     contact  Zuri  at  zurilma@mountainbizworks.org     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.   www.mountainbizworks.org