Basic Accounting for Farmers

Disclosure

The numbers in this presentation are fictitious and used for illustrative purposes only.

As you plan and project for your own business, you will need to research and calculate the financial data based on your specific economic reality.

Agenda

1. Why Bother?

2. Goals for this Webinar

3. The Financial Statements

a) Income Statement

b) Cash Flow

c) Balance Sheet

4. Basic Concepts for Developing Bookkeeping Systems

5. Applications of Concepts

Why Bother Keeping Better Records?

Is your business profitable?

Navigate Cash Crisis

Can you afford to purchase new

equipment?

File taxes

Provide documentation to prospective

lenders and investors

Goals – Develop Building Blocks

Understand Basic Accounting

Develop Systems for Tracking your finances

Track and Measure your progress

Plan for growth and profit

Ensure Your Business is Financially Sustainable

Garbage In, Garbage out.

Income Statement:

Summarizes Operating Revenues and Expenses Revenue

Net Sales

COGS Seeds/Seedling

Produce for Resale

Operating Expenses Direct Operating

Labor

Occupancy

G&A

Repairs and Maintenance

Income Taxes

Operating Income = Revenue – Expenses

Other Income & Expense

Net Income = Operating Income + Other Income/Expenses

Cash Flow 101

Know when you’ll have cash and when you’ll need to save or borrow…

Cash Flow From Operations Inflow: Sales Revenue

Outflow: Operating Expenses

Cash Flow From Investments Inflow: Sale of Equipment, Land or Other Assets

Outflow: Purchase of Equipment, Land or other Assets

Cash Flow From Financing Inflow: Cash Received from Loan, Grants or Investors

Outflow: Repayment of Loan or Investors

Statement of Cash Flows

• Cash Flow from Operations

• Cash Flow from Investing

• Cash Flow from Financing

Net Income Cash Flow

The Balance Sheet

Assets Liabilities Owners’ Equity

What You Have

•Cash •Inventory •Equipment and Buildings •Breeding Stock

What You Owe What You Own

•Accounts Payable •Credit Cards •Bank Loans and Lines of Credit

•Net Income •Investors Equity •Owners Equity

Basic Concepts for Creating Systems

Cash Accounting

Record revenues and expenses when the cash is

received or spent.

No A/P or A/R

• Record revenues when earned, and expenses

when incurred.

• Match expenses with revenues when possible

Fixed vs. Variable Costs

Fixed Costs: Variable Costs:

A periodic charge that does not

vary with business volume.

Insurance

Rent

Bank Fees

An expense that varies with

production output and/or revenue.

Seeds and Seedlings

Animal Feed

Labor/Payroll

Operating Expenses vs. Capital Expense

Operating Capital

Short Lived Purchases

Inexpensive

Improvements

Examples

- Hand tools

- Fixing Fence

- Animal Feed

Long Lived Purchases

Life-extending

Improvements

Examples

- Greenhouses

- New Plastic

- Breeding Stock

Assigning Buckets

Purchasing Assets Operating Revenue

and Expenses

Cash Flow From

Financing

Assigning Buckets

Purchasing Assets Operating Revenue

and Expenses

Cash Flow From

Financing

Pricing, Budgeting and Forecasting

Now What?

Can you afford to make new purchases?

Are you charging the right price?

Are your expenses in line?

Does it make sense to enter a new market?

And of course,

File your taxes

Easily assemble numbers for loans and grants

Looking Back to Look Forward

“Performance data quoted represents past

performance; past performance does not guarantee

future results.”

But it’s your best predictor

Looking Back 2008 2009 2010

Revenue

Sale of Vegetables 193,780 191,509 214,563

AgreSource 5,818 1,190

Settlement 49

Vegetables 28,217 13,792 17,561

Total Revenue 227,815 205,350 233,314

Cost of Sales

Fruit, Vegetables and Gifts for Resale 19,188 22,989 26,657

Christmas Trees and Wreaths for Resale 12,367 11,166 12,179

Total Cost of Sales 31,555 34,155 38,836

Gross Profit 196,260 171,195 194,478

Accounting 165 165 165

Advertising 2,917 2,810 2,780

Association Dues 426 360 445

Car and Truck

Chemicals 7,154 8,078 7,854

Depreciation 5,324 8,275 7,571

Equipment 355

Fertilizer and Lime 16,627 5,695 17,056

Freight and Trucking 1,887 2,035 1,694

Gasoline 6,062 5,285 6,537

Insurance (excluding health) 3,104 2,924 2,239

Labor Hire 22,800 22,800 22,800

Rent or Lease: Other 2,720 1,785 1,785

Repairs and Maintenance 10,508 17,676 19,978

Seeds and Plants 32,790 37,012 36,251

Supplies 8,312 8,632 7,105

Taxes 4,848 4,911 5,126

Taxes: Payroll 1,744 1,744 1,744

Taxes: State Sales 4,197 4,867 5,645

Utilities 8,241 8,557 12,226

Veterinary, breeding and Medicine

Other Expense

Total Expense 139,826 143,611 159,356

Income Statement (Cash Basis)

Year Ending, Dec 31

Crop Profitability

Getting the Crop in the Ground (by acre)

Seeds

Seedlings

Fertilizer/Amendments

Stakes

Labor – planting/weeding

Getting the Crop to the Market (by case/pound)

Packaging

Labor – Harvest/Packing

Distribution

Tomatoes

Measurements:

Acreage Planted: 1 acre

Yield: 34 cases – 25 lb each per week

Harvesting Season: 8 week

Conversions:

1 acre = 272 cases = 6,800 pounds

Field Costs – Seasonal/by the acre

Labor Starting seeds ($20)

Watering ($20)

Transplanting ($60)

Staking ($40)

Weeding ($40)

Potting Soil/Trays $100

Seeds $60

Black Plastic/Amendments $50

Total Cost Per Acre: $390

Cost Per Case: $1.43

Field Costs – By the Case

Labor

Harvesting – 15 minutes per case

Sorting/Packaging – 10 minutes per case

$5/case

Supplies

Packaging - $.60/case

Total Cost = $5.60/case

Total Cost: Seed to Case = $7.03

Distribution Costs

Wholesale

Calls to Customers/Place Orders – 10 minutes

Packaging for Wholesale; loading truck – 10 minutes

Delivery Time – 40 minutes

Fuel - $5

Truck Expense -- ??

Total Cost Per Delivery $17 ++

Filling in the numbers

Sale Price $25.00

Gross Profit $17.97

Delivery $17.00

Profit $ .97

Sale Price $250.00

Gross Profit $179.70

Delivery $ 17.00

Profit $162.70

Thank you!

More resources:

http://www.juliashanks.com/tools-for-entrepreneurs/

Email: julia@juliashanks.com

Call: 617-945-8718