Basic Accounting for Farmers

Disclosures & Disclaimers

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

Financials and Numbers are consolidated for presentation purposes.

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. Introductions and Goals for this Webinar

2. Income Statement

3. Balance Sheet

4. Cash Planning

5. Budgeting

Develop Building Blocks

Understand Basic Accounting

Develop Systems for Tracking your finances

Track and Measure your progress

Plan for growth and profit

Accounting For Farmers Part I

QuickBooks Webinars

We are here!

End Game!

Today’s Goals

Evaluate the health of your business by reviewing the Income Statement

Use the Balance Sheet to Understand Cash Flow

Develop tools to manage Cash Flow

Income StatementWhen to use: Understand the profitability of your business, as

well as the nuances of your different products lines and revenue streams.

Project the profitability of a new venture. File your taxes.

Key Details: Business activity over a period of time Activities directly related to the operation of

your business, as well as indirect activities Total revenue, total expenses and net profit.

Income Statement

“Troubleshooting” Profitability

“Troubleshooting” Profitability

Revenue Is it going up or down?

COGS Are you marking up resale items enough?

Operating Expenses What are the major expenses?

Operating Profit Is it positive?

Other Income & Expenses Are they driving losses?

2009 2010 2011 2012 Farm Income

CSA Revenues 16,500 23,750 32,250 40,000Farmers Market Sales 27,492 27,519 27,547 27,575Grant NA 25,000 NA NA

Total Income 43,992 76,269 59,797 67,575

Less Cost of Goods Sold 2,508 2,600 2,600 2,600

TOTAL GROSS INCOME $41,485 $73,669 $57,197 $64,975

EXPENSESAdvertising 362 100 100 100Dues & Publications 500 500 500 500Equipment 5,374 25,000 2,000 2,000Feed (grain) 3,632 3,995 4,394 4,834Fertilizer & Lime 1,704 1,874 2,062 2,268Gasoline/Fuel/Oil 2,544 3,053 3,664 4,397Insurance 2,250 2,588 2,976 3,422Labor Hired (Payroll) 10,250 11,655 11,888 12,125Postage 192 195 200 200Professional Fees 1,600 1,600 1,600 1,600Repairs & Maintenance 3,283 3,500 3,800 4,000Seeds & Plants 1,696 3,000 3,240 3,499Supplies 2,777 3,500 4,000 4,000Taxes 6,790 6,790 8,000 8,000Telephone 1,068 1,100 1,100 1,100Trash 111 450 450 450Utilities 2,130 2,237 3,141 3,298Veterinary 95 100 100 100Website/Marketing 510 60 60

TOTAL EXPENSES $46,357 $71,746 $53,274 $55,953

NET PROFIT/ LOSS -$4,872 $1,923 $3,923 $9,022

The Schedule F- Income Statement

Challenge #1 Grants are included in Revenue

2009 2010 2011 2012Farm Income

CSA Revenues 16,500 23,750 32,250 40,000Farmers Market Sales 27,492 27,519 27,547 27,575Grant 0 25,000 0 0

Total Income 43,992 76,269 59,797 67,575

Feed (grain) 3,632 3,995 4,394 4,834Percent of Income 8% 5% 7% 7%

2009 2010 2011 2012EXPENSES

Advertising 362 100 100 100Dues & Publications 500 500 500 500Equipment 5,374 25,000 2,000 2,000Feed (grain) 3,632 3,995 4,394 4,834Fertilizer & Lime 1,704 1,874 2,062 2,268Gasoline/Fuel/Oil 2,544 3,053 3,664 4,397Insurance 2,250 2,588 2,976 3,422Labor Hired (Payroll) 10,250 11,655 11,888 12,125Postage 192 195 200 200Professional Fees 1,600 1,600 1,600 1,600Repairs & Maintenance 3,283 3,500 3,800 4,000Seeds & Plants 1,696 3,000 3,240 3,499Supplies 2,777 3,500 4,000 4,000Taxes 6,790 6,790 8,000 8,000Telephone 1,068 1,100 1,100 1,100Trash 111 450 450 450Utilities 2,130 2,237 3,141 3,298Veterinary 95 100 100 100Website/Marketing 510 60 60

TOTAL EXPENSES $46,357 $71,746 $53,274 $55,953

Challenge #2 Expenses aligned to Schedule F, not business reality

Direct Cost of AnimalsLiability? Vehicle?

Employees?Payroll Tax? Property Tax? Income Tax?

Income Statement:Organize to Extract Meaning

Revenue Net Sales

COGS Produce & Products for Resale

Gross Profit = Revenue - COGS Operating Expenses

Direct Operating Labor Occupancy General and Administrative (G&A) Repairs and Maintenance

Operating Income = Gross Profit – Expenses Other Income & Expense

Grants Depreciation Interest Expenses

Net Income = Operating Income + Other Income & Expenses

Income Statement - ExampleRevenue Payroll Repairs and MaintenanceCSA 13,528 Labor Hire 44,252 Car and Truck 4,261 Farmers' Markets 139,032 Taxes: Payroll 4,868 Gasoline 6,556 Wholesale 7,726 Workman's Comp + Disability 2,000 Repairs and Maintenance 819

Seedling Sale 3,610 Total Payroll 51,119 Tools 1,311 Total Revenue 163,896 Total Repairs and Maintenance 12,948

General and AdministrativeCost of Goods Sold 30,779 Accounting Services 300 Occupany

Advertising 819 Rent 3,325 Gross Profit 131,116 Bank Fees 144 Utilities 3,000

Insurance (excluding health) 800 Total Occupany 6,325 Direct Operating Expenses Continuing Education 100 Booth Fees 2,500 Meals and entertainment 164 Total Operating Expenses 101,090 Equipment 3,278 Offi ce supply 819 Fertilizer and Lime 1,639 Permits and licenses 50 Operating Income 30,026 Mulch 5,736 Professional fees 500 Pest Control 1,475 Subscriptions 100 Depreciation 16,239 Seeds and Plants 3,278 Work Clothes 300 Interest Expense 2,548

Soil Tests 500 Total General and Administrative 4,097 Taxes 48 Supplies 8,195

Total Direct Operating 26,601 Net Income 11,192

Common-Size Numbers

Payroll

Labor Hire 44,252 49,644 53,392

Taxes: Payroll 4,868 5,461 5,873 Workman's Comp + Disability 2,000 2,000 2,000

Total Payroll 51,119 57,105 61,265

Revenue

CSA 13,528 14,475 17,633 Farmers' Markets 139,032 148,764 153,202 Wholesale 7,726 9,271 10,661 Seedling Sale 3,610 3,951 4,140 Total Revenue 163,896 176,461 186,637

Payroll

Labor Hire 44,252 49,644 53,392

Taxes: Payroll 4,868 5,461 5,873

Workman's Comp + Disability 2,000 2,000 2,000

Total Payroll 51,119 57,105 61,265

31% 32% 33%

Common-Size Numbers

Is Revenue Going Up Or Down?

2013 2014 2015 2013 2014 2015

Revenue

CSA 13,528 14,475 17,633 8% 8% 9%Farmers' Markets 139,032 148,764 153,202 85% 84% 82%Wholesale 7,726 9,271 10,661 5% 5% 6%Seedling Sale 3,610 3,951 4,140 2% 2% 2%Total Revenue 163,896 176,461 186,637 Percentage Annual Growth 8% 6%

2013 2014 2015 2013 2014 2015

Revenue

CSA 13,528 14,475 17,633 8% 8% 9%Farmers' Markets 139,032 148,764 153,202 85% 84% 82%Wholesale 7,726 9,271 10,661 5% 5% 6%Seedling Sale 3,610 3,951 4,140 2% 2% 2%Total Revenue 163,896 176,461 186,637 Percentage Annual Growth 8% 6%

Percent of Total Revenue

Growth Rate = (new-old)/old

Revenue

CSA 13,528 14,475 17,633 Farmers' Markets 139,032 148,764 153,202 Wholesale 7,726 9,271 10,661 Seedling Sale 3,610 3,951 4,140 Total Revenue 163,896 176,461 186,637 Percentage Annual Growth 8% 6%Cost of Goods Sold 30,779 37,292 40,327

Percent of FM Revenue 22% 25% 26%

COGS: Are you marking up resale items enough?

Review Expenses [[Click to Excel Spreadsheet]]

Questions?

The Balance Sheet When to use: Provide to potential lenders To help in cash planning To understand the changes of your business

Key Features: A snapshot in time, usually at the end of the

fiscal year or month that details what the business has (assets) and how it got them.

It shows who has claims to your assets – whether it is you/your business or someone else.

The Balance Sheet

Assets Liabilities Owners’ Equity

What You Have

•Cash•Inventory•Equipment and Buildings•Breeding Stock

Equation

What You Owe What You Own

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

•Net Income•Investors Equity•Owners Equity

Balance Sheet – Example #1Dec 31, 10 Dec 31, 11 Dec 31, 10 Dec 31, 11

ASSETS LIABILITIES & EQUITY

Cash/Bank Balances 31,643$ 11,102$ Liabilities

Total Current Assets 31,643$ 11,102$ Long Term Liabilities

Fixed Assets Promisary Note 15,400$ 12,300$

Buildings Total Long Term Liabilities 15,400$ 12,300$

Farmstand 12,526$ 16,826$ Total Liabilities 15,400$ 12,300$

Greenhouse 21,798$ 32,598$

Road 17,400$ 17,400$ Equity

Total Buildings 51,724$ 66,824$ Opening Balance Equity (0)$ (0)$

Partner Equity 67,362$ 67,362$

Machinery & Equipment Retained Earnings 58,672$ 99,381$

Fencing 3,327$ 6,327$ Total Equity 126,034$ 166,743$

Equipment/Vehicles 45,900$ 84,150$ TOTAL LIABILITIES & EQUITY 141,434$ 179,043$

Irrigation 13,282$ 13,282$

Office Equipment 197$ 197$

Tools 2,427$ 5,427$

Total Machinery & Equipment 65,133$ 109,383$

Accumulated Depreciation (7,066)$ (8,266)$

Total Fixed Assets 109,791$ 167,941$

TOTAL ASSETS 141,434$ 179,043$

Where’d the Money Go? Your

business is profitable, but cash is tight.

Dec 31, 10 Dec 31, 11 Change

ASSETS

Cash/Bank Balances 31,643$ 11,102$ (20,542)$

Total Current Assets 31,643$ 11,102$ (20,542)$

Fixed Assets

Buildings

Farmstand 12,526$ 16,826$ 4,300$

Greenhouse 21,798$ 32,598$ 10,800$

Road 17,400$ 17,400$ -$

Total Buildings 51,724$ 66,824$ 15,100$

Machinery & Equipment

Fencing 3,327$ 6,327$ 3,000$

Equipment/Vehicles 45,900$ 84,150$ 38,250$

Irrigation 13,282$ 13,282$ -$

Office Equipment 197$ 197$ -$

Tools 2,427$ 5,427$ 3,000$

Total Machinery & Equipment 65,133$ 109,383$ 44,250$

Accumulated Depreciation (7,066)$ (8,266)$ (1,200)$

Total Fixed Assets 109,791$ 167,941$ 58,150$

TOTAL ASSETS 141,434$ 179,043$ 37,608$

Balance Sheet – Example #2Dec 31, 11 Dec 31, 11

ASSETS LIABILITIES & EQUITY

Current Assets Liabilities

Checking/Savings 18,796.86 Current Liabilities

Accounts Receivable 18,366.85 Accounts Payable 11,281.63

Total Current Assets 37,163.71 Credit Cards 1,595.19

Federal Taxes Payable 1,183.88

Fixed Assets Payroll Liabilities 1,119.62

Land 185,000.00 State Taxes Payable 4,897.73

Machinery & Equipment 364,551.56 Total Current Liabilities 20,078.05

Structures 301,217.58

Vehicles 101,498.00 Long Term Liabilities

Accumulated Depreciation (521,148.49) Mortgage 312,263.25

Total Fixed Assets 431,118.65 Total Long Term Liabilities 312,263.25

Total Liabilities 332,341.30

TOTAL ASSETS 468,282.36

Equity

Opening Bal Equity 40,545.99

Owner's Withdrawal -33,229.76

Retained Earnings 78,713.74

Net Income 49,911.09

Total Equity 135,941.06

TOTAL LIABILITIES & EQUITY 468,282.36

Questions?

Managing Cash Flow Create a budget

Track Cash Flow

Compare Budget to Actuals

Make Adjustments

Creating a Budget (Projections) Review Previous Year Consider Changes for coming year Outline

Revenue Expenses Capital Purchases Financing

Check Cash Flow Adjust as Necessary

Cash Flow BudgetAccounts

2014 Actuals

January February MarchRevenues

SalesCSA 13,597$ 17,500 40 1,000 4,000 Farmers Markets 70,347$ 71,000 Winter Farmers Market 8,228$ 11,500 1,800 1,300 1,300 Special Order 4,603$ 4,500 500

Total Revenues 125,430$ 137,500 3,690 3,500 6,300

ExpensesDirect Operating

Ag Supplies 2,052$ 2,100 690 400 Animals

Animal Feed 2,279$ 2,500 1,250 Animal Supplies 497$ 1,000

Cover Crop Seed 150$ 1,200 72 1,128 Fertilizers and Lime 2,995$ 3,800 1,437 1,263 1,100 Harvest/Storage Bins 356$ 356 122 Insect and disease control 108$ 200 63

Net Cash Flow 32,900$ (7,042) (2,472) (9,787)

Cash Flow Beginning Cash 50,688 43,646 41,174 Ending Cash 43,646 41,174 31,388

2015 Projections (Monthly) 2015 Projections

Weekly Cash Planning – Example #1

Item Amount Where to find the numbers

Beginning Cash Balance

$4,075 Check Register (QB) or Balance Sheet

Bills due this week - 1,386 Balance Sheet (A/P) or QB

Other payments expected

- 1,500 Projections

Cash Expected this week

+ 1,500 Projections

Payments from Customers Expected

+ 1,000 Balance Sheet (A/R) or QB

Cash to set aside -1,000 Budget

Cash Available $2,689

Weekly Cash Planning – Example #2

Item Amount Where to find the numbers

Beginning Cash Balance

$4,075 Check Register (QB) or Balance Sheet

Bills due this week - 2,386 Balance Sheet (A/P) or QB

Other payments expected

- 4,500 Projections

Cash Expected this week

+ 1,500 Projections

Payments from Customers Expected

+ 1,000 Balance Sheet (A/R) or QB

Cash to set aside - 1,000

Cash Available - $1,311

Questions?

Thank you!

More resources:

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

Email: julia@juliashanks.com

Call: 617-945-8718

Depreciation & Accumulated Depreciation Example: You Buy a tractor for $5,000 on January 1. You anticipate it has 5 year life, and at the end of year 5, it has no value

ANNUAL DEPRECIATION EXPENSE

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

$2,000 Accumulated Depreciation after 2 years

$3,000 Accumulated Depreciation after 3 years

$4,000 Accumulated Depreciation after 4 years

$1,000 $1,000 $1,000 $1,000 $1,000