1 Financial Planning with FAST Tools By Paul N. Ellinger Gary Schnitkey Travis Farley

Women in Agriculture: April FAST Tools farmdocfarmdoc companion project initiated in 1999 Development of 42 spreadsheet-based tools to aid decisions for producers, lenders, consultants and investors Facilitate use, access, distribution of tools and resources through CD and internet distribution –Quarterly subscription –farmdoc –farmdoc download –via workshops Approximately, 30,000 CDs produced and another 35,000 downloads Increased demand for education and training

Women in Agriculture: April Current Resources and Activities 45 laptop computer lab FAST educator / coordinator CD duplication –internal and cooperate w/other extension programs 50+ annual meetings in Illinois / integrated FAST –80% were supported w/RMA Teaching modules for each program –Case studies and examples Theme & Focus Theme & Focus Teach Decision Making Integrate and utilize FAST Not just computer training

Women in Agriculture: April Educational Efforts 3 Dimensions Content/ Meeting Type Intended Audience Host(s)

Women in Agriculture: April Content: Modules Financial planning Crop insurance Grain inventory pricing and management Machinery management Land investment and lease analysis Enterprise analysis

Women in Agriculture: April Audiences Targeted and General Farmers –General and women via Annie’s project Lenders FSA Farm bureau managers College and High School Students Educators (train the trainer programs) –College and Jr College instructors –Vo-Ag Teachers –Extension Educators –State record fieldstaff (Iowa, KY, Illinois and Alabama)

Women in Agriculture: April Hosts “Getting the right people at the table” Typical Extension Channels Farm Bureau Farm Credit System Commercial Banks Growmark State Record Keeping Associations

Women in Agriculture: April FAST Tools - Overview farmdoc materials Computerized Decision Aids Financial Analysis InvestmentAnalysis 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

Women in Agriculture: April Financial Analysis  Appraisal of current financial position  Balance sheet  Ratio calculator  Cash flow planning  Cash to accrual income approximation  Estimates of deferred taxes  Repayment capacity analysis  Personal financial planning  Longer-term planning – in development  Net worth allocation Assist in preparing and interpreting financial information and measuring financial health Assist in preparing and interpreting financial information and measuring financial health

Women in Agriculture: April Investment Analysis Assist in measuring the economic returns and performance of alternative types of investments. Assist in measuring the economic returns and performance of alternative types of investments.  Capital budgeting  Grain bin analysis  Land purchase analysis  Lease versus purchase  Machinery financing  MACRS calculator  Savings calculator  Time value of money calculator

Women in Agriculture: April Loan Analysis  Loan amortization  Loan comparison  Revolving loan calculator Assist in calculating loan payments and schedules; comparing alternative loans; and measuring the sensitivity of payments to changes in loan parameters Assist in calculating loan payments and schedules; comparing alternative loans; and measuring the sensitivity of payments to changes in loan parameters

Women in Agriculture: April Farm Management Assist in developing enterprise budgets and breakeven levels; estimating costs of machinery operations; and comparing crop insurance and farmland leasing alternatives Assist in developing enterprise budgets and breakeven levels; estimating costs of machinery operations; and comparing crop insurance and farmland leasing alternatives  Break even analysis  Crop budgeting tool  Crop insurance calculator  Enterprise allocation and analysis  Farmland lease analysis  Machinery lease analysis

Women in Agriculture: April Grain Marketing and Management Assist in tracking grain inventory and estimating the costs and returns of grain storage and delivery Assist in tracking grain inventory and estimating the costs and returns of grain storage and delivery  Crop storage analysis  Grain delivery model  Grain pricing model  Grain inventory management

Women in Agriculture: April Risk Management Assist in evaluating the impact of farmland lease types as well as marketing and crop insurance strategies on Assist in evaluating the impact of farmland lease types as well as marketing and crop insurance strategies on revenue and income distributions.  Crop insurance historical evaluator  Farm rent evaluator  Marketing and crop insurance risk model

Women in Agriculture: April 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 Assist in analyzing county-level historical crop yields and land prices and assist with common computations related to soil productivity measures and yield predictions  Illinois, Indiana, Iowa crop yield database  Illinois farmland sales database  Illinois soil productivity index utilities

16 Financial Planning Modules

Women in Agriculture: April Day Program Repayment analysis Ratio analysis Financial Planning –Annual and multi-year

Women in Agriculture: April Repayment Capacity Critical for determining and understanding the income needs from the farming operation Good discussions regarding family living budgets –Resources: Illinois record keeping data Consumer expenditure studies

Women in Agriculture: April Repayment Capacity, cont.

Women in Agriculture: April Stage 1: Repayment Analysis

Women in Agriculture: April Stage 2: Repayment Analysis

Women in Agriculture: April For Illinois: Risk Analysis Enter Budget and Crop Insurance Data Based on 31 years of county level production and price data Assess the likelihood of achieving income levels needed

Women in Agriculture: April Ratio Calculator Designed to assess financial health through ratio and trend analysis Minimum set of data needed to complete the “sweet 16” ratios Calculate “scaled” health and trend index for each ratio. Store multiple years Professional version for multiple customers

Women in Agriculture: April Educational Programs Case study Drawbacks and cautions of financial ratios Evaluate the strong and weak areas (liquidity, profitability, leverage, repayment capacity) Assess strategies to improve the various areas

Women in Agriculture: April

Women in Agriculture: April Why Budget? Decision analysis benchmarks –Cost control –Marketing –Identify opportunities –Contingency planning –Meet financial goals – discipline –Managing cash surplus/deficits profitably Organization Communication Monitor performance And … my lender wanted one

Women in Agriculture: April Desired Components of a Financial Plan profitabilityFocus on projected profitability of a plan – not just cash flow –What do we need to break even? –What cushion do we have to meet debt payments? Sensitivity analysis (stress testing) –Prices –Production –Costs –Interest rates Basis of comparison and validation –Benchmarks –Previous year comparison –Comparison to actual

Women in Agriculture: April Getting Organized Synchronize cash, loan, and inventory balances Total cash expenses for 2005 Current inventories –Units and price Status of government payments –Due from 2005 crop Balance and payment schedules for loans –Interest owed at end of year –Scheduled payments Items prepaid for 2006 crop and payable for 2005 crop at the end of the year

Women in Agriculture: April Getting Organized, continued Enterprise cropping plan –acres –share of acres –lease type and share –expected production –government payments –costs per acre Crop insurance protection –Level of yield or revenue protection Livestock plan –Expected production –Expected sales and purchase price –Feed costs –Other livestock expenses

Women in Agriculture: April Getting Organized, continued Planned capital purchases –Expected level and cost of financing Nonfarm sources and uses of cash –Wages –Business income/expenses –Family withdrawals Before visiting lender –Check if lender is using suggested commodity prices –View Consumer Credit Report: See handout

Women in Agriculture: April Financial Analysis Case Study Enter complete set of cash flow information Customize budget entries per site location

Women in Agriculture: April Financial Planning Attributes Built-in risk parameters Quarterly projections –Cash flow –Income statements –Commodity sensitivity and break even –Previous year comparison –Scenario analysis

34 Financial Planning Demos

Women in Agriculture: April Comments and Questions Complimentary CDs Looking for reviewers, partners and ideas Cooperate in CD production Facilitate your programs