This session is focused on looking at the key costs to consider in pricing for your product. We will also walk through the process of determining a break-even point for your business and explore other financial skills and tools to help plan for farm profit.

1. Farm Financials
Barry Gupton – Mountain Bizworks
Patrick Doran – Mountain Bizworks
Emeralda Sandoval – Del Valle Fresh, Inc.

3. Business Finance
Decision Making
• Record Keeping / Accounting
• Analysis:
Financial Statements
Business Model

4. Purposes of Record Keeping?
Accurate & organized records Good Information Informed
decision making improved performance

5. 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)

6. Business Model
Business
Inputs Outputs
Resources into business Products/Services Sold
Performance/Success = Difference between Outputs and Inputs

7. Business Model with P&L Statement
• Time Period
• P&L equation:
Sales
- COGS (Variable Expenses)
Gross Profit
- Fixed Expenses (Overhead)
Net Income (Net Profit)

8. 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

9. Financial Business Model
Strategic Decisions
• Pricing
• Volume
• Costs

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

11. 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

12. BEP Volume Example
Gupton 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

13. 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

14. 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

15. 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

16. Business Model
Business
Inputs Outputs
Resources into business Products/Services Sold
Financial: $ Expenses/ Costs $ Sales
Non-Financial:
Owner Labor and time Non $ personal benefits “free food”
Effort, personal risk Community impact
Land, other assets Environmental impact

17. 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.

18. • Barry Gupton – barry@mountainbizworks.org