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

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

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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

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FINANCIAL FUNDAMENTALS FOR FOOD HUBS, PART 5: PUTTING IT ALL TOGETHER

An NGFN An NGFN Webinar binar

March 21, 2017

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Presentation Outline

Welcome

Wallace Center at Winrock International

Putting It All Together

Questions and Answers

Upcoming Sessions

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http://ngfn.org/hubfinances

contact@ngfn.org

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Presentation Outline

Welcome

Putting It All Together

  • Gary Matteson, Farm Credit

Council

  • Erin Pirro, Farm Credit East

Questions and Answers

Upcoming Sessions

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Putting it All Together

Erin Pirro

Farm Business Consultant

Gary Matteson

VP/YBS Farmer Programs and Outreach

Make your financial statements work for YOU!

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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!
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The Three Main Reports

  • Balance Sheet = Snapshot

(at beginning and end)

  • Income Statement = Movie
  • Statement of Cash Flows = Synopsis

(with the plot twist explanations)

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The balance sheet

Scoring for next move:

Net Worth <40% 40% < Net Worth < 70% Net Worth > 70% Know your Net Worth Percentage: Equity Total Assets x100 = 60%

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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 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)

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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

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Five Line Income Statement

Sales 100%

  • COGS/COP
  • 77%

Gross Margin 23% Fixed (OH)

  • 20%

Net Operating Margin 3%

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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?

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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 Seeds and Plants 25,000 Total Produce Costs 545,000 Protein Purchases 132,000 TOTAL COST OF PRODUCT $677,000 70%

Protein Department Performance Protein Sales $143,000

  • Protein Costs

$132,000 = GM Protein $11,000 GM % Protein 8%

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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 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!
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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%

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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

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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%

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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%

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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%

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Effect of Margin on Growth

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

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Solutions?

  • Raise prices
  • Lower costs
  • Reduce shrink
  • Improve efficiency
  • Others?
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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!)

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Jeff Farbman

Wallace Center at Winrock International contact@ngfn.org

Erin Pirro

Farm Credit East erin.pirro@farmcrediteast.com

Questions and Answers

Gary Matteson

Farm Credit Council matteson@fccouncil.com

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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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Get Connected, Stay Connected