Financial and Management Planning for Young Producers - Dr. David Kohl, Professor Emeritus, Agricultural Finance and Small Business Management, Virginia Tech, from the 2013 Minnesota Pork Congress, January 16-17, Minneapolis, MN, USA. More presentations at http://www.swinecast.com/2013-minnesota-pork-congress

1. FINANCIAL & MANAGEMENT
PLANNING FOR
YOUNG PRODUCERS
Dr. David M. Kohl
Professor Emeritus, Agricultural and Applied Economics
Virginia Tech, Blacksburg, VA
(540) 961-2094 (Alicia Morris) | (540) 719-0752 (Angela Meadows) | sullylab@vt.edu
January 16, 2013 Road Warrior of Agriculture: www.cornandsoybeandigest.com

2. “Dr. Dave’s” Key Ratios & Practices
Metric Green Yellow Red
Coverage >200% 110-200% <110%
Working Capital/Revenue >33% 10-33% <10%
Debt to Equity <100% 100-200% >200%
Total Debt/EBITDA <3.5% 3.5-5.0% >5.0%
ROA- Return on Assets >10% 2-10% <2%
Credit Score +700 650-700 <650
Business Plan Written & Partial Plan Verbal
Plan Annually
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3. Quick Reads on the Balance Sheet
 equity/debt ratios (90, 60, under 50 rule)
 working capital/liquidity benchmark metrics
 earned net worth vs. appreciated net worth
 accounts payable/credit card debt
 business vs. personal balance sheet
 zone of valuation of assets and liabilities
 financial working capital equal to two years of
biggest losses
 personal liquidity- minimum of 3 to 6 months of
living expenses 3

4. Reads on the Income Statement
 making long term capital expenditure
decisions based upon tax records
 not doing accrual-adjusted records
 interest expenses exceed 15% of revenues
 miscellaneous expenses more than 5% of
revenues
 expenses (less depreciation & interest) below
70% of revenue
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5. Reads on Cash Flow Projections
 Living expenses – monthly plus 25%
 Co-mingling business and personal
 Cash withdrawals- valuation of perks
 Capital expenditure allocation
 Living costs are like concrete- once it sets up
then it is difficult to change
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6. The Golden Rules
 Rule #1 - business profit & success formula
 P = O + C + L + M2
 Rule #2 - $40,000 to $70,000 net income
 prevents guerrilla warfare
 Rule #3 - growth rule / annually
 10 to 15 percent gross
 5 to 7 percent net
 Rule #4 - corvette rule
 family living is an overhead cost / credit card debt
 Rule #5 - 20% expenses / networking capital
 cash is king
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7. The Golden Rules (Continued)
 Rule #6 - 3 to 5 years
 networking and labor management
 Rule #7 - six years
 the hired employee for life
 Rule #8 - 3000/500 hours
 time is the precious commodity
 Rule #9 - 5 to 10% and 100 - age
 don’t put all your eggs in one basket
 Rule #10 - missions and goals
 a goal is a dream with a deadline
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8. Family Living Summary
2000 - 2011 Family Living Summary*
No. of
EXPENSE ITEM 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Families
Included
Food $5,870 $4,444 $5,117 $5,175 $5,690 $5,758 $6,273 $7,063 $7,007 $8,386 $8,688 $9,167 in Avg.
2000=56
Clothing $1,972 $1,499 $1,467 $1,322 $1,695 $1,444 $1,639 $2,130 $2,272 $2,616 $2,893 $2,803 2001 = 46
2002 = 84
Personal Items $3,101 $3,762 $2,220 $2,147 $2,507 $1,486 $1,778 $1,286 $1,969 $1,555 $3,234 $7,137 2003 = 61
2004 = 65
Education $1,440 $1,349 $1,199 $1,227 $1,713 $1,313 $1,041 $852 $1,183 $1,986 $1,861 $2,836 2005 = 55
2006 = 60
Recreation $3,678 $2,326 $1,594 $1,704 $1,776 $1,393 $2,129 $2,759 $4,313 $3,579 $5,155 $5,308 2007 = 47
2008 = 48
Utilities & Fuel $1,649 $1,895 $1,678 $1,692 $2,037 $2,198 $2,201 $2,305 $2,767 $3,347 $2,854 $2,721 2009 = 38
2010 = 49
Minor Repairs & Supplies $2,364 $2,218 $1,961 $3,225 $4,024 $1,443 $2,053 $3,015 $7,448 $6,211 $8,103 $11,833 2011 = 39
Average
Insurance (Life & Home) $2,833 $2,178 $2,407 $3,004 $3,441 $3,118 $3,340 $3,421 $4,372 $5,014 $4,840 $5,113 Family Size
2000 = 3.0
Gifts $2,142 $2,176 $1,491 $1,935 $1,940 $3,906 $2,833 $2,418 $3,480 $2,185 $5,753 $4,839 2001 = 2.8
2002 = 2.7
Medical Expenses $4,887 $4,507 $6,353 $6,363 $7,962 $8,193 $7,880 $8,670 $9,928 $10,320 $13,694 $12,594 2003 = 2.8
(includes Health Ins.) 2004 = 3.1
Church & Charity $1,515 $1,659 $2,038 $2,062 $2,131 $2,428 $2,983 $2,781 $3,392 $3,592 $4,360 $6,259 2005 = 2.7
2006 = 2.9
Personal Interest $474 $693 $457 $598 $881 $467 $1,000 $2,043 $1,972 $1,668 $2,204 $1,638 2007 = 2.9
2008 = 3.0
New Furniture & Equipment $262 $793 $0 $181 $20 $0 $106 $0 $500 $250 $322 $734 2009 = 3.3
2010 = 3.3
Home Improvements $1,029 $2,312 $1,634 $550 $423 $569 $3,466 $2,717 $663 $1,472 $1,460 $1,969 2011 = 3.3
(Taxes & Rent) Total Family
Miscellaneous** $3,314 $325 $5,114 $5,147 $6,059 $6,370 $7,240 $8,410 $11,533 $10,403 $10,819 $7,518 Living
1988 = $22,460
Personal Auto $1,847 $1,613 $2,034 $2,521 $2,365 $2,479 $3,322 $2,822 $3,327 $2,629 $3,010 $3,264 1989 = $25,944
1990 = $27,271
__________ __________ __________ __________ __________ __________ __________ __________ __________ 1991 = $27,924
TOTAL $38,377 $33,749 $36,764 $38,853 $44,664 $42,565 $49,284 $52,692 $66,126 $65,213 $79,250 $85,733 1992 = $28,118
1993 = $31,887
Income, Soc. Sec. Taxes $10,300 $10,333 $8,862 $7,280 $7,840 $9,145 $11,648 $12,887 $26,078 $27,844 $30,059 $40,354 1994 = $33,650
1995 = $31,704
TOTAL TAXES & F.L. $48,677 $44,082 $45,626 $46,133 $52,504 $51,710 $60,932 $65,579 $92,204 $93,057 $109,309 $126,087 1996 = $30,943
1997 = $33,534
1998 = $36,343
* 1999-2008 includes data from both the NFBA and Nebraskaland Farm & Ranch Management Education Program. 1999 = $36,040
Prior years include only the NFBA data.
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9. Farm Family Living Expense Increases
Expense Item % Increase from 2000-
2011
Food 56%
Medical/health insurance 158%
Personal interest, consumer credit 246%
cards
Miscellaneous 127%
Gifts 126%
Education 97%
Recreation 44%
Social Security and income tax 292%
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