Bu d g e t in g a n d Ca sh Flo w Ma n a g e m e n t

M O D U L E 8

Teach t ra in e e s a b o u t p re lim in a ry fin a n c ia l issu e s t h a t n e e d to b e c o n sid e re d re g a rd in g sto c k a n d se rvic in g o f fa rm e q u ip m e n t , a s w e ll sm a rt a q u a c u ltu ra lp ra c t ic e s fo r b u ild in g a se c to r.

Go a l

Understand the importance of financial and stockre c o rd s.

Un d e rst a n d th e d iffe re n c e s in in fra st ru c tu re a n dp re -o p e ra t in g c o st ve rsu s o p e ra t in g o r p ro d u c t io n c o st .

De te rm in in g c a sh flo w a n d re tu rn s o n in ve stm e n t t o d e t e rm in e p ro fit a n d lo ss.

Ap p lyin g a se c to ra l SWOT a n a lysis.

Le a rn in g Ob je c t ive s

• The magnitude of financial investment required to set -up, operate, and maintain an aquaculture operation depends on the level of technology involved and the type of culture system adopted.

• The investment requirement increases as a function of technology level and degree of complexity of the culture system.

• Extensive systems requiring the least capital investment and intensive systems needing the most.

• It should be noted, insurance for such investment especially where there is a loan component, should be considered.

In t ro d u ct io n

• Auaculture facilities are successful once adequate management procedures are implemented.

• This implementation of management directs several types of records to be kept:

In t ro d u ct io n

• Where investment costs are high and land and labour are limited and costly, the trend will be intensification to achieve maximum yields per unit area.

• Where land, labour and fish are inexpensive and feed is unavailable or costly, the trend is for extensive culture utilizing larger pond area and natural food.

‘Do lla rs a n d Se n se ’ o f Aq u a cu lt u re

• Th e cost in cu rre d a re u su a lly tw o typ e s:

• In st ru c tu re an d p re -op e ra t in g cost• Prod u ct ion an d op e ra t in g cost• De ve lop m e n ta l cost is typ ica lly a se c tora l

cost .

• Du rin g th e d e ve lop m e n t p h ase of th e se c tor, th e m arke t a cce p tan ce is te ste d to d e te rm in e sp e c ie s acce p tan ce , th e b e st form or p re se n ta t ion of th e p roce sse d p rod u ct an d p ackag in g typ e .

• Small -scale aquaculture development projects which involve simple production facilities (like rafts and stakes for mollusc culture and bamboos and ropes for seaweed farming) require minimal financial inputs.

• Highly intensive, highly complicated production systems, as those used for intensive shrimp grow -out operations, require large outlays not only for initial development but also for operation and maintenance.

• The actual land or water surface acquisition is another large input cost at the beginning of such projects.

I. Infrastructure and pre -operating cost

• The major cost items in aquaculture production, as in any other type of agriculture production inputs:

- seed stock- feed - fertilizers

• Operating and maintenance costs: - including cost of labour- power- miscellaneous expenses including harvesting costs

II. Production inputs and operating cost

• Most production systems are not profitable until after their first two years.

• Systems usually earn returns after the first sale of product.

• Profit of this system is determined by subtracting the total cost of production or operating cost from the selling price.

• It is here the first gauge of profits are noted.

‘Do lla rs a n d Se n se ’ o f Aq u a cu lt u re

• On ce su cce ssion a l p rofits from sa le s a re n ote d th is is to ta le d an d th e n su b trac te d from th e in fra st ru c tu re cost to d e te rm in e th e d e b t of th e in ve stm e n t .

• Ag a in , m ost p rod u ct ion syste m re a lize th e ir p rofitab ility on ly a fte r th e in fra st ru c tu re d e b t is c le a re d w h ich can take a s m u ch a s tw o ye a rs.

• During the production cycle, funds should be allocated for operating cost such as feed and labour.

• Feed cost contribute as much as 75% of cost of some production facilities.

• Some facilities fail not as a result of fish not growing but due to poorly managed funds.

‘Do lla rs a n d Se n se ’ o f Aq u a cu lt u re

• It is th e re fore im p e ra t ive for th e m arke t in g to b e se cu re d an d con trac te d a s e a rly a s h a lf-w ay in to th e p rod u ct ion cycle .

• Som e fa rm e r an d fa rm m an ag e rs stag g e r th e p rod u ct ion so a ll tan ks or p on d s a re n ot h a rve ste d sim u ltan e ou sly.

• This allows for continuous inflow of cash into the farm as well as allows for the stock in production enclosures to be selected for size.

• Putting fish in size classes has its advantages for feed and aggression management which translates into greater profitability.

‘Do lla rs a n d Se n se ’ o f Aq u a cu lt u re

• Farm e rs sh ou ld d ra ft a t im e lin e w ith a ssocia te d cost to p re d ic t ca sh flow .

• Tim e sh ou ld a lw ays b e a lloca te d for le g a l an d ad m in ist ra t ive ap p rova ls a s th e se cou ld a lso a ffe c t th e re ce ivin g of fu n d s to sta rt th e sou rc in g of m a te ria ls an d com m ission in g of th e fa rm .

• To be successful, you need to assess whether it is worth starting a business.

• What will it cost to produce your final product?

• Setting the price at the right level is very important.

• Can the price you want to sell it at cover the costs without being too expensive for the final buyer?

• Is there a final buyer who is interested in your product?

• Successful businesses will match the skills and resources of the entrepreneur or producer group with the needs of the customers.

Risk Reduction and Sectoral SWOT Analysis

• Who else produces a similar product and could be a competitor?

• To work well over a long period, a business will have to learn to deal with risk, including competition and changing circumstances.

• One way of reducing risk is by linking with others to form a group.

• When people come together, they bring in different skills and resources and have more options to reduce risks. A group also has a stronger voice in the market.

• Planning is key for the establishment of a successful business.

• The new business person should understand the environment they are entering with the business.

• A SWOT analysis is a tool that can be used to develop the business idea, make decisions, solve problems, and develop a marketing strategy.

• A SWOT analysis comprises of firstly an idea or circumstance to be evaluated. Once this is determined, the following is identified:

- St re n g t h s (S): th e se a re cu rre n t b e n e fits an d re a son s w h y th e p ro je c t sh ou ld b e im p le m e n te d

- W e a k n e s s (W ): th e se re a son s w h y th e p ro je c t sh ou ld n ot b e im p le m e n te d

- Op p o rt u n it ie s (O): th e se w ou ld b e th e fore ca stab le favorab le sce n a rios th a t sh ou ld cou n te r a c t th e la st e le m e n t (T)

- Th re a t s (T): th e se cou ld b e cu rre n t or fore se e ab le issu e s th a t m ig h t h in d e r th e p rofitab ility of th e p ro je c t .

Risk Reduction and Sectoral SWOT Analysis

On c e t h e s e c t o ra l d yn a m ic s a re e va lu a t e d in c lu d in g t h e va rio u s b o t t le n e c k s s u c h a s :

• Availability of reliable feed for both hatcheries and grow -out

• Hatchery capacities - ensuring reliable fingerling stock

• Processing and marketing opportunities

• Financing and insurances

• Enabling legislation and government support

Risk Reduction and Sectoral SWOT Analysis

• Simple bio -security measures such as foot and wheel baths at farm gate entrances, reducing accessibility to production and enclosure tanks and sanitization of nets and other fish handling gear can maintain bio -security.

• This would protect staff and stock from communicable disease.

• Predation at pond facilities are sometimes an issue particularly by caimans, predatory fish and birds.

I. Personal and Bio -Security

• Protection from flood waters help with controlling unwanted fish species and caimans, however birds and fish -eating bats might be controllable by using nets or security lines.

• These break up flight paths and deter them, but is not 100% guaranteed.

• The use of security cameras can also help reduce losses by larceny and vandalism.

• During severe weather conditions, fires, floods or any other unforeseen circumstance an Emergency Response Plan or Emergency Facility Shut Down Protocol should be implemented.

• Shutting down of water pumps, aerators, generators are usually detrimental to farm stock so only in extreme circumstances should this be considered.

II. Emergency Response and Emergency Shut Down Protocols

• Protocols for these should be documented and the farm manager along with all staff should be fully cognizant of this.

• In some instances, such as power loss, emergency power might have to be activated.

• It makes sense for farms to invest in back up power generation for water pumps and aerators.

• This is particularly important in aquaponic systems and recirculating tank systems that have a higher stocking density than pond systems.

• Generators should be switched on monthly to ensure proper working components. Fuel log should also be kept.

II. Emergency Response and Emergency Shut Down Protocols

• Installation of automated generators with automatic transfer switch (ATS) mechanism usually needs permission from the national electrical authority as well generators above certain power capacities.

• Bunker storage of fuel also requires permission in several countries as this could pose a fire hazard.