An NGFN An NGFN Webinar binar August 20, 2015 ONE PAGE COST BENEFIT ANALYSIS TOOL
Archive http://ngfn.org/webinars
Presentation Outline Technical Orientation Welcome Jeff Farbman Wallace Center at Winrock International Pencil It Out Questions and Answers Upcoming Opportunities, etc.
W ALLACE C ENTER AT W INROCK I NTERNATIONAL • Market based solutions to a 21 st Century food system • Work with multiple sectors – business, philanthropy, government • Healthy, Green, Affordable, Fair Food • Scaling up Good Food
NATIONAL GOOD FOOD NETWORK: VISION
NATIONAL GOOD FOOD NETWORK: GOALS Supply Meets Demand • There is abundant good food (healthy, green, fair and affordable) to meet demands at the regional level. Information Hub • The National Good Food Network (NGFN) is the go to place for regional food systems stories, methods and outcomes. Policy Change • Policy makers are informed by the Data and Analysis and outcomes of the NGFN and have enacted laws or regulation which further the Network goals. http://ngfn.org | contact@ngfn.org
Presentation Outline Technical Orientation Welcome Pencil It Out Gary Matteson Farm Credit Council Janie Hipp University of Arkansas Law School Beau Sheffield Farm Credit East Central Oklahoma Questions and Answers Upcoming Opportunities, etc.
Pencil It Out Janie Hipp U of Arkansas Law School Beau Sheffield Farm Credit East Central Oklahoma Gary Matteson Farm Credit Council
Where we are headed 1. The Big Plan (concept of business planning) 2. The Magic Number (gross margin) 3. The Little Plan (cost/benefit analysis) 4. Legal Issues (exposure to risks) 5. Risk Management (safe practices plus insurance)
Know Yourself What are your skills? What is your tolerance for risk? What is your capacity to deal with ambiguity? What is your capacity to lead others? What is your capacity for self-discipline?
know yourself Three basic business skills: 1. Financial 2. Production 3. Marketing If you are lucky you have two of these skills. Partner with or hire the skill you don’t have.
define success enough net profit to meet your goals for your family and your business
know your business • Tell your story in a business plan • A budget is a plan in numbers • Cost/benefit analysis is a tool to understand what to buy — or not
PEOPLE FINANCIAL PRODUCTION MARKETING
The 5-Line Income Statement Gross margin is the Historical Dollars % of Sales magic number for estimating future Sales ( total income) $134,400 100% performance! - Cost of Goods Sold: $80,096 60% (variable costs) = Gross Margin: $54,304 40% - Overhead (fixed costs) $10,472 8% = Profit (Net Margin) $43,832 33%
cost/benefit analysis Analysis of a part of your farm business to compare the costs and benefits of change partial budget analysis — marginal analysis — cost/benefit analysis
cost/benefit analysis • informed decision & examine all aspects • determine solid reasoning to acquire the new item (other than you want it!) • thoughtful process to identify all likely costs and all likely benefits • process applies to any business
cost/benefit analysis compare outcomes buy new equipment repair the old stuff new production practice keep doing what works utilize new market sell to the same folks Invest in a business divest a business begin new enterprise fugettaboutit
cost/benefit analysis Benefits: new or additional revenue reduced or eliminated costs Costs: new or added costs revenues reduced or lost pencil it out: Benefits – Costs = Net Benefit
Gross margin is the magic number for estimating future performance!
Legal Issues to Consider • Using the examples of: – Buying a new cooler – Installing a new irrigation system – Installing a wash station – Buying a new tractor – Buying a new high tunnel production system • What are the legal issues attached to these examples?
Legal Issues to Consider • Are you borrowing money to pay for equipment or improvements? • What contractual obligations do you agree to when borrowing money? • Be aware that a lender files liens on your equipment or property when you acquire debt • Understand borrower responsibilities for keeping records, communicating with lender, repaying debt, not selling the collateral without permission, etc.
Legal Issues to Consider • Are you buying or installing these improvements to sell into new markets? – Sell into new market such as farm stand, CSA, or farmers market – Sell to restaurants, grocery stores, or schools • Each of these venues has legal issues related to being in that market
Legal Costs and Benefits • Not just financial cost/benefit • Legal or regulatory costs/benefits are harder to determine • If properly addressed, legal and regulatory issues can increase profitability
Legal issues with markets • Food Safety • Determine food safety requirements for new markets • Are these requirements under tribal, local, state or federal law? • Are the legal requirements a part of administrative regulations (like FSMA) or a tribal, state or local law? • Perishable Agricultural Commodities Act (PACA) • Covers the sale and payment of perishable ag products in the marketplace • School or other institutional procurement • Requirements of GAP certification or some other proof that the operation engages in safe, sanitary processes • Interstate movement of food in commerce
Role of Insurance • Insurance is a common tool to mitigate inherent risk of certain types of activities – Homeowners insurance – Vehicle insurance – Carrier insurance – Product liability insurance – General tort liability insurance – Premises liability insurance for landowners – CROP INSURANCE • Insurance policies are contracts and each party to the contract has roles and responsibilities
Importance of Insurance • Covers protected losses • Provides legal representation in case you are sued in relation to the activity that you purchased the insurance to cover • Covers the risks that you determine are important • Example: Tractors - - are inherently dangerous pieces of equipment - - what happens if someone using the tractor has a serious injury that incapacitates them for life? What is your legal exposure as the landowner/tractor owner/employer?
www.AnnualCreditReport.com
Questions and Answers Gary Matteson Farm Credit Council matteson@fccouncil.com Janie Simms Hipp Indigenous Food and Agriculture Initiative jhipp@uark.edu Beau Sheffield Farm Credit of East Central Oklahoma beau.sheffield@aglender.net Jeff Farbman Wallace Center at Winrock International contact@ngfn.org
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