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Tim Beck Dairy Business Management Educator. Dairy business planning. Parts of the Plan – Kurtz Example. “Owning” Your Plan. Does every farm plan have this much information?

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dairy business planning
Tim Beck

Dairy Business Management Educator

Dairy business planning
owning your plan
“Owning” Your Plan
  • Does every farm plan have this much information?
    • Company summary, Goals, S.W.O.T analysis, Mission Statement, farm alternatives and Human Resource Plan already completed
    • Preliminary Financial Analysis – spreadsheets with breakeven costs
  • The Farm Manager needs to fully “own the plan” to manage it successfully in the future.
key financial ratios
Key Financial Ratios
  • Term Debt Coverage (Repayment Capacity)

Term-debt coverage ratio

- tells whether your business produced enough income to cover all intermediate and long-term debt payments. A ratio of less than 1.0 indicates that the business had to liquidate inventories, run up open accounts, borrow money, or sell assets to make scheduled payments

key financial ratios1
Key Financial Ratios
  • Current ratio (Liquidity)

Current ratio:

measures the extent to which current farm assets, if sold tomorrow, would pay off current farm liabilities

key financial ratios2
Key Financial Ratios
  • Farm debt-to-asset ratio (Solvency)

Farm debt-to-asset ratio:

is the bank’s share of the business. It compares total farm debt to total farm assets. A higher ratio is an indicator of greater financial risk and lower borrowing capacity

key financial ratios3
Key Financial Ratios

Net Farm Income: (Profitability)

represents return to 3 things:

• Your labor,

• Your management and

• Your equity,

that you have invested in the business

key financial ratios4
Key Financial Ratios
  • Loan Payments per Cow (Risk Tolerance)

145 Farms (2013 Cash Flow Plans):

    • Average $665/cow/year
    • Range $132 -- $1,697/cow/year
financial ratios before after
Financial Ratios—Before/After

http://www.finbin.umn.edu/

unique considerations robotic systems
Unique Considerations:Robotic Systems
  • Hired labor should be lower per cow, loan payments per cow may be higher
    • Trading capital investment for hired labor cost
  • Debt per cow high compared to historical standards:
    • Look more closely at loan payments/cow
    • Milk sales/cow—evaluate adequacy of the revenue to service debt
environmental costs funding
Environmental Costs & Funding
  • Required manure handling, storm water and site improvements can cost $200K - $700K per project
    • Seek the support of environmental professionals to explore grant funding for these projects
  • The financial viability of your expansion plan may depend on grant funding
    • Be prepared to revise your plan as funding is confirmed
plan risk assessment
Plan Risk Assessment
  • Ratio of Cows to Crop Acreage
  • Current production and management compared to plan estimates
  • Historical proof of business performance
  • Risk assessment:
    • Milk / Feed Prices
    • Milk Margin
    • Environmental
2013 summary feed costs
2013 Summary – Feed Costs

Spent $500 less purchased feed/cow vs.

143 farms

working with your lender
Working with Your Lender
  • Involve your lender early in the process
  • Plan at least 1 year before any proposed start
  • Be flexible and open to lender requests and bank standards
  • Expect plan revision requests
  • Be persistent and willing to redesign your plan if the first edition isn’t considered fully viable
tools for plan development
Tools for Plan Development:
  • Penn State Cash Flow spreadsheet:
    • http://extension.psu.edu/animals/dairy/business-management/financial-tools/cash-flow-planning
  • FINPACK software
    • http://www.cffm.umn.edu/FINPACK/
  • AgPlan Web Site:
    • https://www.agplan.umn.edu/
  • “Full Version” of Adobe Acrobat