Business Planning for Livestock Producers. James McWhorter UF/IFAS Highlands County Livestock Agent

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1 Business Planning for Livestock Producers James McWhorter UF/IFAS Highlands County Livestock Agent

2 Introduction Why create a business plan Components of a business plan Financial statements Five C s of credit Modifying your plan

3 Beef Industry 91% of the ranchers in the United States have 100 head or less. This group also owns 45% of the U.S. beef herd 81% of the ranchers have 50 head or less This group owns 30% of the U.S. beef herd 2012 Census of Agriculture

4 Beef Prices

5 Why Create a Business Plan Planning is the most vital part to any successful business It allows you to set realistic goals and compare your actual results with your anticipated results. This allows the owner / manager to quickly identify problems before they get out of hand Having a plan explains your ideas to lenders if you are looking for financing.

6 Business Plan Components Executive Summary Business Description Operations Marketing Plan Management & Organization Financing Plan

7 Executive Summary The Executive Summary is the key points in your business plan Includes: Mission Statement: one or two sentences that sums what you want to do. Goals Keys that will make your business successful

8 Business Description This section describes your farm/livestock business This section should include: A business overview Location(s) Facilities: Cow pens, barns etc and the condition. Business history Ownership structure The legal structure of the business and why you chose this structure

9 Operations This section describes what you produce, how much you produce, and how you produce it. Included in this section: The breed of livestock Average production levels Describe your production methods

10 Marketing Plan The Marketing Plan should be realistic plan explaining how you will sell your products. The section should include: What you are selling. Where you are selling. Who are your customers.

11 Management and Organization This section describes who manages the operation. Should include: Qualifications and experience of managers What management functions they serve Professional services: What vet you use, any outside labor, where you purchase vaccines and nutritional products, and what, if any, lending services you use.

12 Financial Plan This section describes how you will be financially successful. Includes: Financial position Historical performance Any financial projections How you manage your assets Capital requests

13 Balance Sheet Included in the financial plan should be a balance sheet and an income statement. A balance sheet shows the ranches assets, liabilities and equity. Simply, it provides the net worth of the ranch. Lenders want to know what the ranch owns and what the ranch owes. It provides a snapshot of the ranches ability to pay its debts.

14 Balance Sheet Assets Current Assets Feed Inventory Pounds Total Value Roughage 600 Grain/Concentrate 0 Protein Supplement 600 Salt/Minerals ) Total Feed Inventory ) Prepaid Expenses 0 16) Cash (Checking, Savings, etc.) ) Misc. 0 18) Total Current Assets 6950 Non-Current Assets 19) Machinery and Equipment ) Real Estate Buildings and Improvements Head Base Value Total 21) Replacement Heifers (1 yr olds) ) Bred Heifers (2 yr olds) ) Mature Cows ) Bulls ) Other Non-Current Assets (Horses, etc.) 0 26) Total Non-Current Assets ) Total Assets (line 27a) Liabilities 28) Current Liabilities 6500 (Accounts/Notes Payable, Accrued Interest, Accrued Taxes, etc.) 29) Non-Current Liabilities (Machinery, Real Estate, Livestock, etc.) 30) Total Liabilities 26500

15 Income Statement In addition to the balance sheet, an income statement needs to be included in the financial plan. An income statement details all the incomes and expenses of the ranch to provide the net income of the ranch. Income statements show the profitability of the ranch and can provide insight on the cost of operating a ranch.

16 Income Statement

17 Income Statement Expanded Cows 1) Exposed females. 10 2) Adjusted exposed female inventory 10 Calves Steers/Bulls Heifers All Calves 3) Total head of calves weaned ) Total pounds of calves weaned ) Average weight of calves weaned ) Average price per pound (value) of calves Totals 7) Percent weaned calves 80% 8) Total dollar value of all calves weaned ) Pounds weaned per exposed female 240

18 Income Statement Expanded Revenue Weaned Calves $ 5400 Gain / Loss on Culls Head Average Price/hd Base Value Total Mature Cows $ -200 Heifers $/hd $/hd $ Bulls $/hd $/hd $ Heifers Held for Replacements Other Non-Calf Revenue $ 0 Total Revenue $ 4525

19 Income Statement Expanded Expenses (Cash and Non-Cash) Purchased Feed, Supplement, and Mineral $ 3000 Lease/Rental $ 0 Labor, management, family living (Paid and Unpaid) $ 0 Veterinarian/Medicine $ 250 Interest $ 0 Other (fuel, supplies, taxes, insurance, repairs, etc.) $ 250 Depreciation $ 0 Total Expenses $ 3500 (line 36) Annual Cow Cost $ 350 Total Net Income $ 1025

20 AgPlan AgPlan is a free online agricultural business plan generator provided by the University of Minnesota It walks the user through all the sections of a business plan and provides examples and tips for writing each segment. Users can save, print, and share the business plan from the website.

21 AgPlan

22 AgPlan

23 Five C s of Credit Lenders base their decisions on the five C s of credit when they evaluate someone or a business for a loan. Character Capital Capacity Collateral Conditions

24 Character The owners skill for ownership or management of the ranch. Credit history, education, references. First impression.

25 Capital This is the business equity The equity is determined by the balance sheet. When writing the business plan it is important to use realistic values for your assets on the balance sheet.

26 Capacity Capacity is the business ability to generate enough funds to pay the operating expenses, sustain the business in the future, and provides owner s living expenses. Capacity can be determined by the income statement.

27 Collateral & Conditions Collateral Collateral in most cases will include land, machinery, and livestock. The business has an obligation to maintain assets being used as collateral in good condition. Conditions Conditions of the loan may require the business to keep a certain amount of cash in the bank or restrict the business from borrowing additional money.

28 Modifying Your Plan Besides using a business plan for obtaining loans, a business plan keeps you focused on a set of goals. Unfortunately, not all goals are easily obtainable, but having a plan and keeping records of inventory, expenses, and incomes can explain how to reach those goals. Over time, goals may change, or the initial goals you set may not be realistic and should be changed.

29 Modifying Your Plan We can see from the income statement crop expenses were higher than the income from crops sold. Reviewing past financial statements can show than an enterprise within the ranch was not profitable and should be changed. A business plan is not set in stone, so be flexible, keep good updated records and change the plan as needed.

30 Summary A business plan keeps you and your managers on track to achieve your business goals Keeping accurate records will help with business decisions and can lead to a more efficient operation If you do use a business plan to present to potential lenders, remember the five C s Goals and plans change so can a business plan

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