1. Farm Finances: Part 1 National Farm Viability Conference Albany, NY May 22nd -24th
Mark Cannella
Web:

2. Ag Business Programs blog.uvm.edu/farmvia/ Management Education
Forest Business
Business Planning
Transfer Planning
Applied Research

3. Financial Goals: Business
Cash flow and owner draws
Increased Equity and Net Worth
Profitability: Covering all costs and generating a positive return on capital investments.

4. Financials: The Adviser
Translation of real life to numbers #’s
Accurate and Complete
Building a case for information based decisions.

5. Financial Statements Balance Sheet Cash Flow Statement
Income Statement or Profit and Loss

6. Balance Sheet A snapshot of the farm worth at a single point in time.
Inventories and their value
Assets: Items with a useful life over 1 year
Liabilities: Obligations owed by the business
Net Worth or Equity

7. Equity Looks Like

8. Equity or Net Worth Assets – Liabilities = Net Worth
Generating wealth over time through ownership of assets
Can be liquidated (converted to cash)

9. Valuation Technique Historical Cost:
the initial cost of asset, plus improvement, less accumulated depreciation
Market Value (FMV)
Estimated value using current prices (less selling costs?)

10. C and C Consistent Conservative
Don’t let market shifts distort analysis of the farming operation

11. Depreciation Straight-Line
Annual Depreciation = (Purchase Price less Salvage Value) ÷ Lifespan
($50,000 - $10,000) ÷ 10 years = $4,000 per year
Equipment Lifespan: 5 or 10 years
Improvements Lifespan: 15 or 20 years

12. Key Points Inventory gets discounted!
Real estate may trump improvements
Collateral – Taxes - Analysis – Sale
-Collateral
- Liquidation

13. Sample Balance Sheet The next skills: Solvency Measures Term Structure
Ag Lending
Exit Planning

14. Having sufficient cash on hand to pay bills as they come due.
Cash Flow
Having sufficient cash on hand to pay bills as they come due.
Will you need to borrow, when?
How much can you draw for salary?
Unplanned opportunities or problems

15. Cash Flow Statements
The focus is on transactions Cash Flow Statement: summarizes all cash in-flows and cash out-flows over a specific period of time Cash Flow Budget/Projection: Forecasts cash activity for a future time period.

16. Expense Categories
Variable Expenses: Expenses that go up or down in relation to changes in production level.
What expenses change when this farm adds 500 more layers

17. Expense Categories
Fixed Expenses: Expenses that hold steady even if the business produces more or less goods

18. Expense Categories
Capital Expenses: A special category for the purchase of items or improvements that have a useful life more than one year. (not $100 pruning sheers)

21. Capital Activity + Capital Sales or Contributions +
Sale of Farm Assets
Contributions from Savings
New Loans/Borrowing
- Capital Expenses -
Purchase of Equipment and Real Estate
Loan Payments
Cash Draw to Owners

22. Clues to Improved Management
Find the major expenses
Identify where the income comes from
Measure how much the business supports the livelihood of owners
What else can you find?

23. Profitability
Next time…..

24. Valuation Extras 1 Land: Farmstead:
$2,500 per A if more than 30 acres.
$6,000 per A if less than 30 acres
Farmstead:
~$200,000 depending on residence and infrastructure

25. Valuation Extras 400 lb stockers: $600 each
Breeding Stock: $1,000 - $1,500
What if they die before they are harvested?