Financial Planning with FAST Tools

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

2. 2 FAST Tools farmdoc 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 download via workshops  Approximately, 30,000 CDs produced and another 35,000 downloads Increased demand for education and training

3. 3 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

4. 4 Educational Efforts3 Dimensions

5. 5 Content: Modules Financial planning Crop insurance Grain inventory pricing and management Machinery management Land investment and lease analysis Enterprise analysis

6. 6 AudiencesTargeted 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)

7. 7 Hosts�Getting the right people at the table� Typical Extension Channels Farm Bureau Farm Credit System Commercial Banks Growmark State Record Keeping Associations

8. 8 FAST Tools - Overview

9. 9 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

10. 10 Investment Analysis

11. 11 Loan Analysis

12. 12 Farm Management

13. 13 Grain Marketing and Management

14. 14 Risk Management

15. 15 Yield and Land Database Utilities

16. 16 Financial Planning Modules

17. 17 Day Program Repayment analysis Ratio analysis Financial Planning Annual and multi-year

18. 18 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 www.bls.gov/cex/

19. 19 Repayment Capacity, cont.

20. 20 Stage 1: Repayment Analysis

21. 21 Stage 2: Repayment Analysis

22. 22 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

24. 24 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

25. 25 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

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27. 27 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

28. 28 Desired Components of a Financial Plan Focus 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

29. 29 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

30. 30 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

31. 31 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

32. 32 Financial Analysis Case Study Enter complete set of cash flow information Customize budget entries per site location

33. 33 Financial Planning Attributes Built-in risk parameters Quarterly projections Cash flow Income statements Commodity sensitivity and break even Previous year comparison Scenario analysis

34. 34 Financial PlanningDemos

35. 35 Comments and Questions Complimentary CDs Looking for reviewers, partners and ideas Cooperate in CD production Facilitate your programs