one page cost benefit analysis tool - food...
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ONE PAGE COST BENEFIT ANALYSIS TOOL
An NGFN Webinar
August 20, 2015
Archive
http://ngfn.org/webinars
Presentation Outline
Technical Orientation
Welcome
Jeff FarbmanWallace Center at Winrock International
Pencil It Out Questions and Answers Upcoming Opportunities, etc.
WALLACE CENTER AT WINROCK INTERNATIONAL
• Market based solutions to a 21st 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 | [email protected]
Presentation Outline
Technical Orientation
Welcome
Pencil It Out
Gary MattesonFarm Credit Council
Janie HippUniversity of Arkansas Law School
Beau SheffieldFarm 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
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)
Where we are headed
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.
know yourself
define success
enough net profit to meet your goals
for your family and 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
know your business
PEOPLE FINANCIAL PRODUCTION MARKETING
Historical Dollars % of Sales
Sales (total income) $134,400 100%
- Cost of Goods Sold:(variable costs)
$80,096 60%
= Gross Margin: $54,304 40%
- Overhead(fixed costs) $10,472 8%
= Profit (Net Margin) $43,832 33%
The 5-Line Income Statement
Gross margin is the
magic number for
estimating future
performance!
Analysis of a part of your farm
business to compare the
costs and benefits of change
cost/benefit analysis
partial budget analysis—marginal 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 costsrevenues reduced or lost
pencil it out:
Benefits – Costs = Net Benefit
cost/benefit analysis
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?
• 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 Issues to Consider
• 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 Costs and Benefits
• 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
Legal issues with markets
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
Janie Simms HippIndigenous Food and Agriculture Initiative
Gary MattesonFarm Credit [email protected]
Jeff FarbmanWallace Center at Winrock [email protected]
Beau SheffieldFarm Credit of East Central Oklahoma
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