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Farm FinancialsBarry Gupton – Mountain BizworksPatrick Doran – Mountain Bizworks
Emeralda Sandoval – Del Valle Fresh, Inc.
Business Finance Decision Making
• Record Keeping / Accounting
• Analysis:Financial StatementsBusiness Model
Purposes of Record Keeping?
Accurate & organized records Good Information Informed decision making improved performance
Financial Statements• Profit and Loss (P&L) aka Income Statement• Profitability (Sales – Expense = Profit)
• Balance Sheet• Business Value (Assets – Liabilities = Owner Equity)
• Statement of Cash Flows• Budgeting (Cash In – Cash Out = Cash Balance)
Business Model
Business Inputs Outputs
Resources into business Products/Services Sold
Performance/Success = Difference between Outputs and Inputs
Business Model with P&L Statement• Time Period• P&L equation:
Sales- COGS (Variable Expenses) Gross Profit- Fixed Expenses (Overhead) Net Income (Net Profit)
Types of Expenses• Costs of Goods Sold (COGS)• Costs consumed with each unit of production
• Fixed Expenses• Overhead, often monthly types of expenses
• Start-up expenses• One time expenses needed before business can open• Start-up expenses and assets should be allocated into depreciation expenses
Financial Business ModelStrategic Decisions• Pricing• Volume• Costs
Break Even Analysis • Profitability analysis of business model• Types of B.E.P. Analysis:• Volume• Price• Gross Revenue
B.E.P. Volume
• Time Period (annual, monthly etc.)
• Let’s us know volume we need to sell in order to break even
• Equation:
Fixed Costs / Gross Profit per unit(Price per unit/COGS per
unit) = BEP volume
BEP Volume ExampleGupton Goat Dairy Annual BEP volume analysis• Total annual Fixed Costs$300 - Fencing, Barn, Goat Assets Depreciation $500 – Supplies (medicine, minerals, repairs, hay) • Variable Costs per ½ gallon milk$1.50 – organic feed$ 1.00 – packaging, labeling• Price per ½ gallon milk - $10
BEP Volume Example• Fixed Costs / Gross Profit per unit(Price per unit/COGS per unit) = BEP
volume
• $800 / $7.50 ($10-$2.50) = 107 ½ gallons annually• I have 2 goats that produce for 5 months • Estimated production - 300 gallons
BEP Price• Used to determine what price would = break even profitability
• Useful when production or sales volume is known
• Fixed Expenses + volume x COGS per unit / volume = Break Even Price
BEP Price Example
• Fixed Expenses + (volume x COGS per unit) / volume = Break Even Price
• $800 + $750(300x$2.50) / 300 = $5.17 per gallon
• Profit = $4.83 ($10-$5.17) x 300 = $1449
Business Model
Business Inputs Outputs
Resources into business Products/Services Sold
Financial: $ Expenses/ Costs $ SalesNon-Financial:
Owner Labor and time Non $ personal benefits “free food” Effort, personal risk Community impactLand, other assets Environmental impact
Analyzing the Business Model • Take into consideration all business inputs and outputs
• Looking at just one non financial input:
1 hour of my time per half gallon for milking, packaging and distribution
Profit of $1449/300 hours = $4.83/hr.
• Barry Gupton – [email protected]