Holistic Financial Planning How it has worked for PACE Plan for Success!!!! Holistic Management and Holistic Management International/Healthy Land/Sustainable Future are registered trademarks of Holistic Management International. Copyright 2012 Holistic Management International. All rights reserved.
Holistic Financial Planning Productivity Pyramid Daily Action List Targets (Intermediate) Financial Decisions Objectives (Long Range) Strategy Policy Holistic Goal Quality of life, Behaviors & Systems, and Vision Statements
Holistic Financial Planning Making financial decisions toward your Holistic Goal Facilitating important conversations Analyzing your enterprises Assessing potential new enterprises Planning for profit upfront (not just production) Defining income streams Calculating a cap for all expenditures Prioritizing expenses to reinvest in your operation Monitoring your plan proactively
Holistic Financial Planning The Nine Steps to Financial Success #1 Annual Review #2 Assess Starting Net Worth #3 Plan Income #4 Plan Profit #5 Enterprise Investment Analysis #6 Prioritize Expenses #7 Cash Forecast #8 Assess Ending Net Worth #9 Monitor for Results
Holistic Financial Planning Financial Planning vs. Accounting Production vs. Profit Focus Traditional Model: I E = P Holistic Financial Planning: I P = E
Holistic Financial Planning Plan The best we can do at a given time Replan Does not mean our first plan was wrong. conditions changed. allows us to reach our goals. we are responsible. we make it happen what doesn t change is our Holistic Goal
Holistic Financial Planning What s your Process? Get your team together and figure out a time and process to make the financial plan happen. How do you integrate what you already do with this process?
Step One: Annual Review - Assess Progress Toward Holistic Goal Logjam Is there anything keeping us from making SIGNIFICANT progress toward our Holistic Goal? (Across the operation) If so, this is a Top Priority Investment. Adverse Factors Are other factors adversely affecting the business as a whole? These investments are also top priority.
Step Two: Assess Starting Net Worth - Building Net Worth Assets Cash (last year sale goats) 6,000 Hay, grass 2,000 Equipment (list) 12,000 Other (savings) 50,000 Total $70,000 Liabilities Loan $1,000 Total $1,000 Net Worth $69,000
Step Two: How to Increase Net Worth Increase Assets New equipment Livestock Land Supplies and Inventory Cash on Hand Decrease liabilities such as debts and loans
Step Three: Planning Income
Step Three: Planning Income Tools to help Your Holistic Goal Gross Profit Analysis Enterprise Budgets Your Dreams Your Passion & Skills Matches to your infrastructure and resources (management inventory)
Step Three: Planning Income Income PACE July, 2013 Sept., 2013 Goats 50 hd. $120/hd. $6000 Tomato 100Bu. $40/Bu. $4,000 Total Income $10,000
Step Four: Planning Profit Income $10,000 Expense $3,000 $1,000 Debt Service $1,000
Step Four: Planning Profit I want a profit of X$ or X%. For: Savings (buffer) Investing (addressing key problems like logjam, enterprise weak links, or adverse factors) Increased Net Worth Improved Quality of Life
Step Five: Enterprise Investment Analysis Resource Conversion Product Conversion Marketing Conversion Sunlight and/or raw resources including money Products and/or services Marketing of products and/or services
Step Five: Enterprise Investment Analysis A tool/method to prioritize expenditures Perform it on each enterprise. Identify the weak link and brainstorm solutions. Use the testing questions to select solutions. Cost out solutions and record it on the Investment Worksheet.
Step Five: Enterprise Investment Analysis Identify Weak Link Resource Conversion Top Priority Investments: Education (about how to improve resource) Fences Water Development Soil Amendments Additional labor for planting/harvesting
Step Five: Enterprise Investment Analysis Identify Weak Link Product Conversion Top Priority Investments: Education (how to improve product) Expense to get more milk per animal Get more animals or better genetics
Step Five: Enterprise Investment Analysis Identify Weak Link Marketing Conversion Top Priority Investments: Education (how to sell your product) Change Enterprises (due to market conditions) Time of Marketing Brochure
Step Six: Prioritizing Expenses Be a price maker not a price taker Invest in your business (all expenses are not equal) I P = E Top Priorities Maintenance Liabilities
Step Six: Prioritizing Expenses T: Top Priority Investment. Fix the weak link (or logjam or adverse factor). L: Liabilities (essential and constant or morally obligated) M: All expenses that aren t T or L are Maintenance.
Step Six: Prioritizing Top Priority Expenses T = You want to free up as much money to invest back into the business in the best place to move you toward your Holistic Goal. When adjusting cash flow, cut maintenance first, then liabilities, then top priority investments. Logjam is last to cut.
Step Six: Prioritizing Liability Expenses L Land taxes Lease fees Loan interest
Step Six: Prioritizing Maintenance Expenses M Living expense Phone Utilities Repairs
Step Six: Prioritize Expenses Expense PACE Jan 1/06 Dec 31/ 06 (T) Goats, crop $4,000 Mar. (L) Lease $500 Jan. (M) Water $500 yr. Total Expense $6,000
Step Seven: Cash Forecast
Step Seven: Cash Forecast - Balance Plan Subtract total expenses from total income plus the profit you planned to make sure your PLAN balances. If your PLAN does not balance you can: Cut expenses Use other revenues to offset deficit Increase income (higher prices, sell more products, change enterprise mix, adjust production systems, etc.)
Step Seven: Cash Forecast Goats Tomatoes July Plan 3,000 - Actual 2,500 Difference (500) Cumulative Difference to date (500) Sept Plan 3,000 - Actual 5,000 Difference 2,000 Cumulative Difference to date 1,500
Step Eight: Ending Net Worth Assets Start End Cash $6,000 $7,500 Hay/grass $2,000 $3,000 Equipment (list) $12,000 $11,000 Other (Savings) $50,000 $49.000 Total $70,000 $70,500 Liabilities Start End Bank Loan $1,000 $0 Total $0 $0 Net Worth $69,000 $70,500
Step Eight: Net Worth & Profit Profit=Increased Net Worth An Increase Can Be Held As: Increased Assets Decreased Liabilities BUT Lost Profit???
Step Eight: Net Worth & Profit Strategic Growth in Operation (5-10 year program to double grass/stocking rate) # of Goats 50 60 70 80 90 100 Income/Goat $160 $160 $160 $160 $160 $160 Variable Cost $60 $60 $60 $60 $60 $60 Gross Profit $100 $100 $100 $100 $100 $100 $100 Overheads $10 $9 8 8 8 8 Net Profit/Cow $90 $91 $92 $92 $92 $92 Profit/Ranch $4,500 $5,460 $6,440 $7,360 $8,280 $9,200 Increase +1.21 +1.43 +1.63 +1.84 +2.04
Step Eight: Net Worth & Profit Starting Net Worth Monthly Income & Expense Ending Net Worth We plan until we get a result we like. Relieves stress, worry and anxiety. We are in control. We will make it happen!
Step Nine: Monitor & Control Your Plan Do a financial plan and monitor it A map of where we are going A light to travel by A way to check progress
Testing Financial Decisions The Seven Testing Questions 1. Root Cause 2. Weak Link Tests: social, biological, and financial 3. Comparing Options 4. Gross Profit Analysis 5. Input Analysis 6. Vision Analysis 7. Gut Check
Holistic Financial Planning Plan The best we can do at a given time Replan Does not mean our first plan was wrong. conditions changed. allows us to reach our goals. we are responsible. we make it happen what doesn t change is our Holistic Goal
Lisa Bellows, Ph.D. lbellows@dixonwater.org (940) 736-3996 Holistic Management and Holistic Management International/Healthy Land/Sustainable Future are registered trademarks of Holistic Management International. Copyright 2012 Holistic Management International. All rights reserved.