Copyright © 2003 Center for Farm Financial Management,

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Copyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan Your lender wantsCopyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan Your lender wants to know if your business will be financially successful. Your spouse wants to know too!

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan In many cases,Copyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan In many cases, the financial plan is the most important part of your business plan. The financial plan is particularly important if you are proposing a major change or a new business.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan What do youCopyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan What do you need to include in your business plan to communicate financial viability?

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan Financial viability isCopyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan Financial viability is generally evaluated from three perspectives: • Solvency • Profitability • Liquidity

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan Solvency evaluates changesCopyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan Solvency evaluates changes in net worth • growth in your retirement account Profitability monitor earnings • ability to generate income Liquidity estimates cash flow and debt repayment ability • paying the bills when due

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Solvency Compares the assets investedCopyright © 2003 Center for Farm Financial Management, University of Minnesota Solvency Compares the assets invested (what you own) in the business with the sources of capital (liabilities – what you owe and your net worth) Requires an up to date balance sheet

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Profitability Measures the earnings ofCopyright © 2003 Center for Farm Financial Management, University of Minnesota Profitability Measures the earnings of the business Requires an accrual income statement Optionally use average net income from 3 years Schedule F tax forms

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Liquidity Measures the ability ofCopyright © 2003 Center for Farm Financial Management, University of Minnesota Liquidity Measures the ability of the business to generate cash to meet short term obligations Requires a cash flow statement, usually projected for next year or more

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan The tools usedCopyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan The tools used to communicate a business’s financial situation are: • Balance sheet — solvency • Income statement — profitability • Cash flow plan – liquidity

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Balance Sheet A snapshot ofCopyright © 2003 Center for Farm Financial Management, University of Minnesota Balance Sheet A snapshot of how funds are invested in a business (assets) and the financing methods used (liabilities and owner’s equity) at a given point in time.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Balance Sheet Most producers haveCopyright © 2003 Center for Farm Financial Management, University of Minnesota Balance Sheet Most producers have an existing balance sheet because lenders require one annually. If you need to develop or update your balance sheet you can use FINPACK or use the Guide worksheet.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Income Statement An income statementCopyright © 2003 Center for Farm Financial Management, University of Minnesota Income Statement An income statement measures how much income the business is making in relation to the resources used to produce that income.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Income Statement Not all producersCopyright © 2003 Center for Farm Financial Management, University of Minnesota Income Statement Not all producers have an accrual income statement. Should develop one for your business plan. Can use FINPACK or the Guide worksheet.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Cash Flow Plan A cashCopyright © 2003 Center for Farm Financial Management, University of Minnesota Cash Flow Plan A cash flow plan is a projection of all sources and uses of cash during a specified planning period. It evaluates the business’s ability to meet loan payments and other financial obligations on time.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Cash Flow Plan Most producersCopyright © 2003 Center for Farm Financial Management, University of Minnesota Cash Flow Plan Most producers have an annual cash flow plan. If you need to develop or update your cash flow plan you can use FINPACK or use the Guide worksheet.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan Include a balanceCopyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan Include a balance sheet, income statement, and cash flow plan in your business plan.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan A written descriptionCopyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan A written description of the strengths of these three measurements of your financial projections should also be included. Also describe the assumptions you used to make your financial projections.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Your Financial Numbers Generating yourCopyright © 2003 Center for Farm Financial Management, University of Minnesota Your Financial Numbers Generating your financial statements from a program like FINPACK will make development of your business plan easier. FINPACK provides not only a balance sheet, income statement, and cash flow, but also financial ratios to help evaluate the meaning of your financial numbers.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Asset Management Your financial planCopyright © 2003 Center for Farm Financial Management, University of Minnesota Asset Management Your financial plan should also describe how you acquire and manage capital assets — purchase, lease, or custom hire. How efficiently are assets being used?

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Asset Management An analysis ofCopyright © 2003 Center for Farm Financial Management, University of Minnesota Asset Management An analysis of your investment in capital assets relative to the size of your business may be valuable as you plan the future of your business. Asset management is often the best indicator of future net worth growth.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Capital Required The final partCopyright © 2003 Center for Farm Financial Management, University of Minnesota Capital Required The final part of your financial plan should describe how much money you need to implement your business plan. Describe the sources of your financing. Present your financing request if you have one.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Resources Guide worksheets • BalanceCopyright © 2003 Center for Farm Financial Management, University of Minnesota Resources Guide worksheets • Balance sheet – worksheet 4. 35 • Projected profitability — worksheet 4. 33 • Cash flow – worksheet 4.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Resources FINPACK Business Plan softwareCopyright © 2003 Center for Farm Financial Management, University of Minnesota Resources FINPACK Business Plan software • Balance sheet • Asset management • Projected profitability • Cash flow • Long range projections • Historical trends • Benchmarks • Capital required