shannon dill university of maryland extension sdill@umd · shannon dill. university of maryland...

UNIVERSITY OF MARYLAND EXTENSION

Shannon DillUniversity of Maryland Extension

[email protected]

mailto:[email protected]

UNIVERSITY OF MARYLAND EXTENSIONUNIVERSITY OF MARYLAND EXTENSION

Objectives

• Financial Documents• Enterprise budgeting• Tracking costs


Financial Plan

Balance Sheet Income Statement Cash Flow


Financial Plan

• Very important and necessary component of the business plan– Balance Sheet – Solvency– Income Statement – Profitability– Cash Flow – Liquidity– Pro Forma Statements


Projected Financial Statements

• Lender, farm operation or other factors may require projected financial statements

• To do this review enterprise budgets and financial statements


Balance Sheet – Net Worth

• Summarizes Assets, Liabilities (Debt), Net Worth• Net Worth = Value of Assets – Value of Liabilities• Current (< 12 months), Intermediate (1-10 years)

Long Term (>10 years), Non-farm• “A Balance Sheet is a snapshot of the business’s

financial position”


Balance Sheet

Assets• Cash• Accounts receivable• Inventory• Automobiles• Machinery and equipment• Property

Liabilities• Accounts payable• Credit cards• Notes payable• Mortgages• Loans

– Auto– Other

ASSETS – LIABILITIES = NET WORTH


Balance Sheet Tips

• Save the balance sheet by date and complete at the same time each year to make comparisons

• Get the most current market values and be realistic– Cost Basis or Market Basis


Income Statement - Profitabilty• Summary of revenues and expenses for a specific time

period• Income – Receipts from sales, government payments,

dividends• Expenses – Production expenses, interest, taxes,

insurance, loans• Adjustments* – Inventory values, accounts receivable• Depreciation and Capital Adjustments* • Income – Expenses = Net Income• Main purpose is to determine how much income was

generated by the farm operation


Income StatementIncome• Sales• Government• Accounts receivable• Grain Livestock InventoriesOTHER• Salaries/wages• Interest/dividends• Rentals• Other income

Expenses• Production expenses• Auto expenses• Accounts payable• Taxes due• Labor• Equipment• Repairs/maintenance• Fuel• Insurance

INCOME – EXPENSES (+/- inventory and depreciation)= NET INCOME


Income Statement Tips• Also called the profit and loss statement• Statement that is most closely tied with farm

taxes (Schedule F)• Highly recommend:

– Schedule F– Schedule F Instructions– Publication 225 – Farmers Tax Guide– https://www.irs.gov/forms-pubs/schedule-f-form-

1040-profit-or-loss-from-farming

https://www.irs.gov/forms-pubs/schedule-f-form-1040-profit-or-loss-from-farming


Cash Flow – Liquidity• Summarizes all cash in-flows and out-flows for a

period of time – weekly, monthly, quarterly, yearly• Checkbook Accounting• Important because of seasonality. It will help you

plan your income and expenses over a year.• Does not take inventory or depreciation into account.• Two statements - Projected and Actual Cash Flow


Cash Flow Statement

In-Flows• Product sales• Receipts• Sale of capital assets• Custom Work• Borrowed money

Outflows• Production Expenses

– Seed, fertilizer, feed

• capital expenditures– Utilities, fuel, repairs, taxes,

rent

• loan payments• living expenses

INCOME – EXPENSES = NET INCOME


Cash Flow Tips• Decide on increments you want to track and

the categories of income and expenses• Will show when cash is coming into and

leaving the farm and when you may need an operating loan

• When to schedule loan payments or make capital purchases

• A projected at the beginning of the year –actual at the end


EnterpriseBudget- An organized listing of your estimated

gross income and costs which can be used to determine the expected net income for a particular enterprise

- Divides costs and returns for each enterprise

- Helps to determine the productivity of enterprises and if a business should continue or change enterprises

- Budget on a per unit basis • ex 1 acre, 1 bushel, 1 ton, per sq

ft, per 100 sq ft, per cwt, - Sections include

• Income, Expenses, Profit


Cost ComponentsVariable costs

• These are expenses that vary with output within a production period

• Feed• Seed• Fuel• Fertilizer/Lime• Disease/Insect control• Don’t forget to include labor

and crop insurance

Fixed Costs• Fixed costs are expenses

that do not vary with the level of output.

• Building costs• Machinery costs• Taxes• Insurance• Mortgage


Net Income

Revenue – Variable Costs - Fixed Costs = Net Income

• Expected income• Income over variable costs• Income over variable and fixed costs• Decision making time….


Budget Suggestions• Should be prepared with specific objectives

– Markets, establishment, soil types, management• Receipts and costs are often difficult to estimate

– Numerous, variable – Be sure to have a column of your estimates

• Should contain receipts for every product and by product – processing, stalks etc

• Prices used should reflect market values and productivity of enterprise resources– Ie land, labor, equipment


Resource Inventory

TransportationLandLivestock

Equipment

Facilities

Expertise


Resource Inventory

• Gathering resources whether physical or an expertise is very important

• Resource Inventory Includes– Building and facility requirements– Building and structure inventory– Equipment inventory


Building and Facility Requirements

• Physical Resources– Land, Livestock, Equipment, Facilities,

Transportation

• Expertise– Computers, marketing, record keeping, production

• Other


Building and Structure Inventory

• Building• Purpose• Square Feet• Required Features• Location


Equipment Inventory• Equipment Name• Model• Size• Year Purchased• Age• Condition• Ownership• Book Value• Market Value• This keeps valuable information needed for your

financial statements


Tracking Enterprise Costs

• It is important to know the cost of each enterprise you have– Can be by grain/livestock or tomatoes/peppers

• This can easily be tracked in record keeping software


www.farmdoc.uiuc.edu

http://www.farmdoc.uiuc.edu/


Resourceshttp://aesop.rutgers.edu/~farmmgmt/

Interactive Budget

http://www.agnr.umd.eduFS-545 - Enterprise Budgets in Farm Management

http://www.cce.cornell.edu/Dr. Wenfei Uva, Cornell University

http://www.farmdoc.uiuc.edu/Downloadable Budgets

http://aesop.rutgers.edu/%7Efarmmgmt/

http://www.agnr.umd.edu/

http://www.cce.cornell.edu/

http://www.farmdoc.uiuc.edu/


DO IT!www.extension.umd.edu/mredc

www.extension.umd.edu/newfarmerwww.agplan.umn.edu

www.mdsbdc.umd.edu/

Shannon [email protected]

http://www.extension.umd.edu/mredc

http://www.extension.umd.edu/newfarmer

http://www.agplan.umn.edu/

http://www.mdsbdc.umd.edu/

mailto:[email protected]