Presentation on theme: "Unleashing the Power In Your Clients Numbers A Financial Toolbox To Business Success April 13 & 15, 2010 Rick Hermonot Farm Business Consultant Farm Credit."— Presentation transcript:
Unleashing the Power In Your Clients Numbers A Financial Toolbox To Business Success April 13 & 15, 2010 Rick Hermonot Farm Business Consultant Farm Credit East, ACA
The Five Fives Five Keys to Effective Focus Five Line Income Statement Five Year Averages Five Keys to Profit DIRTI 5
Five Keys to Effective Focus Vision Priorities Hard Work Discipline Passion
Five Keys to Effective Focus Vision: (lifestyle focus) Our mission is to supply the high quality of life to our family that we believe a farm can offer
Five Keys to Effective Focus Vision: (entrepreneurial focus) Our mission is to develop our farm into our primary product
Five Keys to Effective Focus Priorities: We will develop a continuously improved systems approach that maximizes the efficiency of our farm
Five Keys to Effective Focus Priorities: We will maintain an organizational chart that defines our strong future through management continuity and succession
Five Keys to Effective Focus Once you have your destination and rules of the road defined…. Focus on getting there with: Hard Work (we do this too well) Passion (burnout?) Discipline (toughest part)
Five Line Income Statement Gross Sales100% Less COGS 50% Equals Gross Margin 50% Less Overhead 35% Equals Net Margin 15%
Five Year Averages 2005 - $16.13 2006 - $13.81 2007 - $20.52 2008 - $19.59 2009 - $13.75 (estimated) Five Year Average = $16.76/CWT (source: Northeast Dairy Farm Summary)
Five Keys to Profit Gross Sales Efficiency Capacity Dairy Husbandry Cost Control
Gross Sales Production X Price Measured by milk sales per cow
Efficiency Effectiveness at converting raw materials into finished product Measured by your Gross Margin –Per Cow –Per CWT –% of Milk Sales
Capacity Effectiveness of your use of facilities and equipment Measured by Overhead –Per Cow –Per CWT –% of Milk Sales
Dairy Husbandry Industry Skills Measured by Internal Herd Growth –Cull rate –AAC –DOA –Heifer Non-Completion –Calving Interval
Cost Control Per Unit Comparisons to Benchmarks Measured by Net Cost of Production
DIRTI Five Depreciation Interest Repairs Taxes Insurance
Percent DIRTI Five For example: $400,000 Whopper Chopper Depreciation = 20% Interest = 6% Repairs = 5% Taxes = 2% Insurance = 2% Total =35% $400,000 X 35% = $140,000 per year OH
FOR EXAMPLE: How much is a cow worth to me? Dairy husbandry performance (production & cull rate) impacts your investment value. Level of efficiency (Gross Margin) impacts your investment value. The more efficiently you are able to convert variable inputs into milk, the more you can justify paying for a cow. Will we use this years toolbox stats or multi-year stats and what is the difference?
Step 2: Calculate her Maximum Investment Value on Your Farm Milk Sold/Cow Milk Price (2009) Sales/Cow % Gross Margin (5-yr avg.) Gross Margin Divided by % DIRTI 5 & Profit Equals Max. Investment Value Top 25% 23,000 13.85 $3,186 31% $978 72% $1,358 Bottom 25% 20,000 13.60 $2,720 17% $462 77% $600 Using the toolbox, we can quickly determine a farms investment value of a cow. How does that compare to the current market price of a cow?
As service providers, what can we do? Ask Questions: –What vision and priorities do you have for your farm? –What is your percent gross margin? –What is your net cost of production? –What are these numbers using five year averages? –What needs to happen to make that investment be profitable on your farm? (Use the
As service providers, what can we do? Encourage use of advisory teams and offer to participate More and more farms are willing to share at least the numbers used in this toolbox with all members of their advisory team.
Summary Do you have vision and priorities? What strategic destination are you focusing on: –With Hard work –With Passion –With Discipline Use the financial toolbox to help with building the roadmap that directs your business to its destination
Summary Look at your five-line income statement Consider five-year averages in volatile markets Consider the five keys to profitability Understand the DIRTI Five
Summary As service providers we can all help to lead our customers to: Become proactive profit makers rather than reactive profit takers!
Discussion Rick Hermonot Farm Business Consultant Farm Credit East, ACA 800-327-6785