FINANCIAL FUNDAMENTALS FOR FOOD HUBS, PART 5: PUTTING IT ALL - PowerPoint PPT Presentation

An NGFN An NGFN Webinar binar FINANCIAL FUNDAMENTALS FOR FOOD HUBS, PART 5: PUTTING IT ALL TOGETHER March 21, 2017

Presentation Outline Welcome  Wallace Center at Winrock International Putting It All Together  Questions and Answers  Upcoming Sessions 

http://ngfn.org/hubfinances contact@ngfn.org

Presentation Outline Welcome  Putting It All  Together  Gary Matteson, Farm Credit Council  Erin Pirro, Farm Credit East Questions and Answers  Upcoming Sessions 

Putting it All Together Make your financial statements work for YOU! Erin Pirro Farm Business Consultant Gary Matteson VP/YBS Farmer Programs and Outreach

Why use this common chart? • Designed for management • Framework and flexibility • Know what is making you money/what’s not ( MARGIN) • Know your costs of production, including labor • Make good decisions strategically and timely • Decide WHAT changes to make and when • Consider the best results for your business • Participate in/benefit from the benchmark • Earn PROFIT to support your mission!

The Three Main Reports • Balance Sheet = Snapshot (at beginning and end) • Income Statement = Movie • Statement of Cash Flows = Synopsis (with the plot twist explanations)

The balance sheet Know your Net Worth Percentage: Equity Total Assets x100 = 60% Scoring for next move: Net Worth <40% 40% < Net Worth < 70% Net Worth > 70%

G & E’s Food Hub Balance Sheets - Fair Market Value As of December 31, 2015 and December 31, 2016 2016 2015 2016 2015 Current Assets Current Liabilities Cash 58,742 31,000 Accounts Payable 8,758 15,000 Accounts Receivable 65,412 8,000 Accrued Expenses 10,000 0 Inventory 190,578 139,000 Operating Loan 100,000 140,000 Supplies 46,000 41,500 Current Portion of IT Loans 8,000 15,000 Prepaid Expenses 6,500 5,000 Current Portion of LT Loans 50,000 50,000 Other Current Assets 3,076 - TOTAL CURRENT ASSETS 370,308 224,500 TOTAL CURRENT LIABILITIES 176,758 220,000 Current Ratio: Current Assets ÷ Current Liabilities : 1 2015: 1.02:1 2016: 2.09:1 (224,500 ÷ 220,000):1 (370,308 ÷ 176,758):1 Working Capital: Current Assets – Current Liabilities 2015: 4,500 2016: 193,550 (224,500 - 220,000) (370,308 - 176,758)

How much is enough? Working capital needs depend on: – Product/services offered – How often income is received – How often are payments made to vendors – Stability of prices and COGS – Ability for business to withstand price fluctuations – Surprises – Guideline: >25% of total expenses

Five Line Income Statement Sales 100% - COGS/COP - 77% Gross Margin 23% Fixed (OH) - 20% Net Operating Margin 3%

Income Statement: Cash vs. Accrual • Cash basis The bookkeeping practice of recording sales and expenses only when cash is actually received or paid out. • Accrual basis The most commonly used accounting method, which reports income when earned and expenses when incurred.  Do we have accurate Balance Sheets surrounding the income statement?

G & E’s Food Hub Income Statement For the Year Ended December 31, 2016 Income continued… Produce Sales $823,000 Protein Sales 143,000 Selling Costs TOTAL INCOME $966,000 Sales/delivery labor $55,000 Merchant fees 12,000 Product Costs (COGS/COP) Total Selling Costs $67,000 Purchased Produce $275,000 7% Fertilizers and Lime 3,000 Freight and Trucking 10,000 GROSS MARGIN $222,000 Gasoline and Fuel 45,000 23% Vegetable Production Labor 187,000 Protein Department Performance Seeds and Plants 25,000 Total Produce Costs 545,000 Protein Sales $143,000 Protein Purchases 132,000 - Protein Costs $132,000 TOTAL COST OF PRODUCT $677,000 70% = GM Protein $11,000 GM % Protein 8%

G & E’s Food Hub Balance Sheets - Fair Market Value As of December 31, 2015 and December 31, 2016 2016 2015 2016 2015 Current Assets Current Liabilities Cash 58,000 31,000 Accounts Payable 15,000 8,000 Accounts Receivable 65,000 8,000 Accrued Expenses 10,000 0 Inventory 190,000 139,000 Operating Loan 100,000 140,000 Supplies 46,000 41,000 Current Portion of IT Loans 8,000 15,000 Prepaid Expenses 5,000 16,000 Current Portion of LT Loans 50,000 50,000 Other Current Assets 3,000 - TOTAL CURRENT ASSETS 367,000 235,000 TOTAL CURRENT LIABILITIES 183,000 213,000 • Match income and expenses to year EARNED/INCURRED : – Accounts Receivable (A/R) – went up, so add $57k income – Accounts Payable (A/P) – went up (you used the product) so add $7k expense • Need to know what these were for! PROTEINS!

Is that your final answer? Protein Department Performance Cash Adjustments Accrual Protein Sales $143,000 + $57,000 A/R $200,000 - Protein Costs $132,000 + $7,000 A/P $139,000 = GM Protein $11,000 $61,000 GM % Protein 8% 30%

Statement of Cash Flows 3 Parts: Operations – Net accrual income – Impact on cash from changes in: A/R Inventory A/P Depreciation Supplies Prepaids Accrued Expenses Investments – Capital Purchases – Capital Sales Financing – Borrowing – Repayment – Contributions – Draws

MORE for Our Food Hub OUR HUB BENCHMARK Sales 100% 100% - COGS/COP - 81% 70% - Selling Costs - 7% - 14% Gross Margin 12% 16% Fixed (OH) - 12% - 12% Net Operating Margin 0% 4%

MORE for Our Food Hub OUR HUB BENCHMARK Sales 100% 100% - COGS/COP - 81% 70% - Selling Costs - 7% - 14% Gross Margin 12% 16% Fixed (OH) - 12% - 12% Net Operating Margin 0% 4%

MORE for Our Food Hub OUR HUB BENCHMARK Sales 100% 100% - COGS/COP - 81% 70% - Selling Costs - 7% - 14% Gross Margin 12% 16% Fixed (OH) - 12% - 12% Net Operating Margin 0% 4%

Effect of Margin on Growth Goal: $50,000 in profit to cover debt service Amount required: $50,000 Divided by GM % 12% Equals breakeven sales needed $417,000 Gross Margin 10% 12% 16% 25% Sales needed $500,000 $417,000 $312,500 $217,000

Solutions? • Raise prices • Lower costs • Reduce shrink • Improve efficiency • Others?

What do we do as managers? • Set goals • Keep good management records • Compare to benchmarks • Build your profit team! • Be ready to participate in the next Food Hub benchmark (early 2018!)

Questions and Answers Erin Pirro Farm Credit East erin.pirro@farmcrediteast.com Gary Matteson Farm Credit Council matteson@fccouncil.com Jeff Farbman Wallace Center at Winrock International contact@ngfn.org

Financials for Food Hubs All Sessions Start at Noon ET √ Tue 2/21 – Introduction and the Common Chart of Accounts √ Tue 2/28 – The Balance Sheet – How and Why √ Thu 3/2 – Office Hours : Balance Sheet √ Tue 3/7 – The Profit and Loss Statement – How and Why √ Thu 3/9 – Office Hours: Profit and Loss Statement √ Tue 3/14 – The Cash Flow Statement – How and Why √ Thu 3/16 – Office Hours: Cash Flow √ Tue 3/21 – Putting it all together – Managing Your Business Using Finances Wed 3/22 – Office Hours: Putting it all together http://ngfn.org/hubfinances

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