Financial Planning with FAST Tools

1. Financial Planning with FAST Tools By Paul N. Ellinger Gary Schnitkey Travis Farley

2. FAST Tools • farmdoc companion project initiated in 1999 • Development of 42 spreadsheet-based tools to aid decisions for producers, lenders, consultants and investors • Facilitate use, access, distribution of tools and resources through CD and internet distribution • Quarterly subscription • farmdoc download • via workshops • Approximately, 30,000 CDs produced and another 35,000 downloads • Increased demand for education and training

3. Current Resources and Activities • 45 laptop computer lab • FAST educator / coordinator • CD duplication • internal and cooperate w/other extension programs • 50+ annual meetings in Illinois / integrated FAST • 80% were supported w/RMA • Teaching modules for each program • Case studies and examples Theme & Focus Teach Decision Making Integrate and utilize FAST Not just computer training

4. Educational Efforts3 Dimensions Host(s) Intended Audience Content/Meeting Type

5. Content: Modules • Financial planning • Crop insurance • Grain inventory pricing and management • Machinery management • Land investment and lease analysis • Enterprise analysis

6. AudiencesTargeted and General • Farmers • General and women via Annie’s project • Lenders • FSA • Farm bureau managers • College and High School Students • Educators (train the trainer programs) • College and Jr College instructors • Vo-Ag Teachers • Extension Educators • State record fieldstaff (Iowa, KY, Illinois and Alabama)

7. Hosts“Getting the right people at the table” • Typical Extension Channels • Farm Bureau • Farm Credit System • Commercial Banks • Growmark • State Record Keeping Associations

8. farmdocmaterials Computerized Decision Aids AgMas Financial Analysis Crop Insurance Investment Analysis Proceedings: Loan Analysis FarmManagement FarmManagement Financial Management Grain Marketing & Management Grain Marketing Risk Management Policy Yield and LandDatabase Utilities Law and Taxation FAST Tools - Overview

9. Financial Analysis Assist in preparing and interpreting financial information and measuring financial health • Appraisal of current financial position • Balance sheet • Ratio calculator • Cash flow planning • Cash to accrual income approximation • Estimates of deferred taxes • Repayment capacity analysis • Personal financial planning • Longer-term planning – in development • Net worth allocation

10. Investment Analysis Assist in measuring the economic returns and performance of alternative types of investments. • Capital budgeting • Grain bin analysis • Land purchase analysis • Lease versus purchase • Machinery financing • MACRS calculator • Savings calculator • Time value of money calculator

11. Loan Analysis Assist in calculating loan payments and schedules;comparing alternative loans; and measuring the sensitivity of payments to changes in loan parameters • Loan amortization • Loan comparison • Revolving loan calculator

12. Farm Management Assist in developing enterprise budgets and breakeven levels; estimating costs of machineryoperations; and comparing crop insurance andfarmland leasing alternatives • Break even analysis • Crop budgeting tool • Crop insurance calculator • Enterprise allocation and analysis • Farmland lease analysis • Machinery lease analysis

13. Grain Marketing and Management Assist in tracking grain inventory and estimating the costs and returns of grainstorage and delivery • Crop storage analysis • Grain delivery model • Grain pricing model • Grain inventory management

14. Risk Management Assist in evaluating the impact of farmland lease types as well as marketing and crop insurance strategies on revenue and income distributions. • Crop insurance historical evaluator • Farm rent evaluator • Marketing and crop insurance risk model

15. Yield and Land Database Utilities Assist in analyzing county-level historical cropyields and land prices and assist with common computations related to soil productivity measures and yield predictions • Illinois, Indiana, Iowa crop yield database • Illinois farmland sales database • Illinois soil productivity index utilities

16. Financial Planning Modules

17. Day Program • Repayment analysis • Ratio analysis • Financial Planning • Annual and multi-year

18. Repayment Capacity • Critical for determining and understanding the income needs from the farming operation • Good discussions regarding family living budgets • Resources: • Illinois record keeping data • Consumer expenditure studies www.bls.gov/cex/

19. Repayment Capacity, cont.

20. Stage 1: Repayment Analysis

21. Stage 2: Repayment Analysis

22. For Illinois: Risk Analysis • Enter Budget and Crop Insurance Data • Based on 31 years of county level production and price data • Assess the likelihood of achieving income levels needed

24. Ratio Calculator • Designed to assess financial health through ratio and trend analysis • Minimum set of data needed to complete the “sweet 16” ratios • Calculate “scaled” health and trend index for each ratio. • Store multiple years • Professional version for multiple customers

25. Educational Programs • Case study • Drawbacks and cautions of financial ratios • Evaluate the strong and weak areas (liquidity, profitability, leverage, repayment capacity) • Assess strategies to improve the various areas

27. Why Budget? • Decision analysis benchmarks • Cost control • Marketing • Identify opportunities • Contingency planning • Meet financial goals – discipline • Managing cash surplus/deficits profitably • Organization • Communication • Monitor performance • And … my lender wanted one

28. Desired Components of a Financial Plan • Focus on projected profitability of a plan – not just cash flow • What do we need to break even? • What cushion do we have to meet debt payments? • Sensitivity analysis (stress testing) • Prices • Production • Costs • Interest rates • Basis of comparison and validation • Benchmarks • Previous year comparison • Comparison to actual

29. Getting Organized • Synchronize cash, loan, and inventory balances • Total cash expenses for 2005 • Current inventories • Units and price • Status of government payments • Due from 2005 crop • Balance and payment schedules for loans • Interest owed at end of year • Scheduled payments • Items prepaid for 2006 crop and payable for 2005 crop at the end of the year

30. Getting Organized, continued • Enterprise cropping plan • acres • share of acres • lease type and share • expected production • government payments • costs per acre • Crop insurance protection • Level of yield or revenue protection • Livestock plan • Expected production • Expected sales and purchase price • Feed costs • Other livestock expenses

31. Getting Organized, continued • Planned capital purchases • Expected level and cost of financing • Nonfarm sources and uses of cash • Wages • Business income/expenses • Family withdrawals • Before visiting lender • Check if lender is using suggested commodity prices • View Consumer Credit Report: See handout

32. Financial Analysis • Case Study • Enter complete set of cash flow information • Customize budget entries per site location

33. Financial Planning Attributes • Built-in risk parameters • Quarterly projections • Cash flow • Income statements • Commodity sensitivity and break even • Previous year comparison • Scenario analysis

34. Financial PlanningDemos

35. Comments and Questions • Complimentary CDs • Looking for reviewers, partners and ideas • Cooperate in CD production • Facilitate your programs