Two Hands on the Wheel! Using Financial Records to Navigate Low Revenue Times by Ruth Hambleton
Jessica Groskopf
Author
02/27/2018
Added
16
Plays
Description
There is nothing new about low revenue times in agriculture. What is changing is the way women are handling it! Women are learning to use the data from financial records and taking an active role in making sensible risk management decisions. With their active participation, women are finding security and lessening stress for the whole family. In this session women will
have hands on experience with balance sheets, income statements and cash flows. Women can expect to have an increased knowledge about financial records and a better ability to work with professionals like lenders and accountants. Come prepared to share tips that have worked well for you and your families.
Searchable Transcript
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- [00:00:03.520]Welcome ladies to the session Two Hands on the Wheel,
- [00:00:06.440]Using Your Financial Records to Help You
- [00:00:09.380]Navigate Through Low Revenue Times.
- [00:00:21.590]Okay how come it works in rehearsal
- [00:00:24.440]and then when it's real time?
- [00:00:28.318](woman mumbling)
- [00:00:34.020]Is it this one?
- [00:00:38.110]Let me see.
- [00:00:40.260]There it is.
- [00:00:42.548](woman mumbling)
- [00:00:44.910]Excuse us here.
- [00:00:48.160]Oh wait, which one have you got going there?
- [00:00:53.120]Now we need to push the display to play again.
- [00:01:00.871]And are you doing that with that one?
- [00:01:02.245]Must be.
- [00:01:03.078]Do you think that's working?
- [00:01:05.100]Okay we found it here folks.
- [00:01:06.810]Good got the right one (mumbling).
- [00:01:09.550]Well, my name is Ruth Hamilton.
- [00:01:11.060]I am the founder of Annie's Project, retired extension
- [00:01:14.000]educator, farm business management marketing with
- [00:01:15.670]the University of Illinois and following my retirement
- [00:01:18.810]in 2009, I created or I made Annie's Project
- [00:01:22.870]Education for Farm Women kind of my life passion.
- [00:01:25.360]We are now a non-profit 501c3 that we have spread
- [00:01:29.790]the program from the state of Illinois on to 34 other states
- [00:01:33.700]including the state of Nebraska here.
- [00:01:35.220]So I'm very pleased to meet with you here.
- [00:01:37.390]A little bit about my background.
- [00:01:38.840]My husband and I we have 40 acres which
- [00:01:41.820]we have a small beef herd.
- [00:01:43.740]Now my husband just recently turned 70 so we are in
- [00:01:47.010]the process of retiring out of the livestock industry.
- [00:01:51.730]So we had our last calf here a couple of weeks ago.
- [00:01:55.270]A heifer, I did not have to help band the thing.
- [00:01:58.870]Yes, so I was so relieved that the last one
- [00:02:01.300]was an easy one there.
- [00:02:02.600]So here's what we're going to do in the class today.
- [00:02:06.450]This is four characteristics of what
- [00:02:12.080]makes a resilient farmer.
- [00:02:14.080]I'm going to go through them briefly here
- [00:02:16.320]and set the stage for what it is that we need
- [00:02:18.760]to use our records to navigate low revenue times.
- [00:02:21.760]Number one resilient farmers own their assets.
- [00:02:26.760]That means that is a plus on
- [00:02:28.950]the balance side of your balance sheet.
- [00:02:32.910]The second characteristic of a resilient farmer
- [00:02:35.770]is that they are cost containers.
- [00:02:38.930]They are relatively low compared to some of those farmers
- [00:02:42.390]who are not doing quite so well and the cost containment
- [00:02:46.250]is going to show up in your income statement.
- [00:02:50.660]Third, right-sized or economy of size.
- [00:02:54.830]Right-sized means that you've got just the equipment that
- [00:02:57.710]you need to get the job done, not overdone, not underdone.
- [00:03:01.670]Overdone, you got a lot of machinery sitting there
- [00:03:05.090]in the shed nine months out of the year.
- [00:03:07.100]Underdone, you're working way too hard
- [00:03:09.810]for what it is you're trying to get accomplished.
- [00:03:12.210]Economy of size refers to that ability to bargain
- [00:03:16.760]with your local co-ops to get that price breaks back
- [00:03:19.370]to that cost containment feature and fourth and final,
- [00:03:23.810]the fourth characteristic of a resilient farmer
- [00:03:25.930]is generate higher revenues.
- [00:03:29.320]Those revenues don't necessarily have to come from the crops
- [00:03:33.440]or the livestock that you were raising on this operations.
- [00:03:36.010]It could be the value added aspect of the farm operation.
- [00:03:39.610]It could be that off farm income.
- [00:03:41.830]So when we say additional revenue,
- [00:03:44.040]we're not necessarily talking about better marketers
- [00:03:46.650]but I know there is another nickel in this market,
- [00:03:50.010]I know there was another dollar on that beef side that
- [00:03:53.820]we can do a little better job on the marketing and I know
- [00:03:56.790]women are amongst the best audiences
- [00:03:59.260]that I have ever dealt with for teaching this.
- [00:04:02.210]Now I'm going to have you commit this diagram
- [00:04:04.350]to memory because later on in the program,
- [00:04:06.970]we're going to be looking at how all the pieces fit together
- [00:04:10.120]and I want to start you out with this
- [00:04:12.090]so we can finish with this.
- [00:04:14.570]First off what we're going to do is
- [00:04:17.140]study up on a balance sheet.
- [00:04:19.010]Anytime, yes ma'am?
- [00:04:21.064](woman mumbling)
- [00:04:23.490]Are we out of the, there we go.
- [00:04:27.440]Okay, if some of you can double up here
- [00:04:30.690]for those that don't have that would help us.
- [00:04:33.360]Okay thank you.
- [00:04:37.820]All right, here if you want to take that
- [00:04:40.230]to the back there for me.
- [00:04:43.100]The first thing that we do and when I'm working with farm
- [00:04:45.280]families that are having a difficult time through
- [00:04:47.380]the low revenue time we all need a starting point
- [00:04:50.500]and the starting point for everyone in this room is your
- [00:04:53.540]balance sheet whether you put one together whether
- [00:04:56.240]it comes out of your records whether you've seen it or not,
- [00:04:59.260]the balance sheet is where I need
- [00:05:01.330]to start with this operation.
- [00:05:03.160]It's much like looking at a picture of your family
- [00:05:07.300]and I always try to relate it back to these
- [00:05:09.958]two things we women can relate to.
- [00:05:11.340]So the balance sheet number one
- [00:05:15.390]is going to give me the financial snapshot.
- [00:05:17.810]This is the picture of your family.
- [00:05:20.490]And then from that financial snapshot
- [00:05:22.460]we're going to work with three ratios, quick and dirty.
- [00:05:25.350]I'm not going to turn anyone here and to an accountant
- [00:05:29.360]but I am going to make you more effective working with
- [00:05:32.330]those professionals and by the way do
- [00:05:34.760]I have any accountants in the room?
- [00:05:39.062]They're so valuable because I can't
- [00:05:42.270]keep my debits to credits straight you know.
- [00:05:44.550]So all right so working capital,
- [00:05:47.210]debt to asset ratio, net worth.
- [00:05:49.760]Those are three things were going to be working with.
- [00:05:52.119]Working capital, think of it is as
- [00:05:54.100]when you're looking at a picture, hairstyle.
- [00:05:58.746]That's an asset ratio, I want you to think of that
- [00:06:01.670]as the clothing that were wearing and net worth,
- [00:06:06.255]have we gained weight or have you lost weight?
- [00:06:10.298](audience laughs)
- [00:06:11.131]Okay, keep those three things in mind there.
- [00:06:14.311]Then we're going to look at cash flow.
- [00:06:19.300]This is, we've taken a financial snapshot
- [00:06:21.910]and now we're going to start running the videotape here.
- [00:06:24.330]We want to see how things move in and out of an operation.
- [00:06:29.070]We do that some with something called the cash flow.
- [00:06:31.750]The line there's the cash flow budget
- [00:06:33.480]and there's the statement of cash flow.
- [00:06:36.120]Cash flow budget forward-looking, cash flow statement,
- [00:06:41.118]historical and what we did with our finances.
- [00:06:45.880]So it's just good old-fashioned record-keeping
- [00:06:48.020]and ladies if you are the primary record keeper of your
- [00:06:50.620]operation this is where you're spending a lot of your time.
- [00:06:55.160]Then we're going to take a break.
- [00:06:56.890]We're going to stop everything and we're going
- [00:06:59.310]to put together the income statement.
- [00:07:02.157]Now the income statement is that document,
- [00:07:04.780]not income tax.
- [00:07:06.470]Income statement, an accrual adjusted document.
- [00:07:09.840]We're going to take that income statement
- [00:07:12.550]and we're going to look to see,
- [00:07:14.350]ask the question did you make money?
- [00:07:17.950]What were you profitable at?
- [00:07:21.740]And that is going to show up on your
- [00:07:24.360]balance sheet number two.
- [00:07:26.750]You have a beginning and an ending, a beginning
- [00:07:28.990]and an ending and these things stretched out over a period
- [00:07:31.850]of time give you your trend line for your farm operation.
- [00:07:35.640]So we are here to the 2nd of our balance sheets
- [00:07:38.830]where again we're going to look at working capital.
- [00:07:41.650]What did I say that is?
- [00:07:44.245](audience mumbling)
- [00:07:45.078]That's your hairstyle.
- [00:07:45.911]Did you change your hairstyle any?
- [00:07:47.510]Shorter, longer, dyed a different color?
- [00:07:50.160]Okay debt to asset ratio what did I say that?
- [00:07:53.174](woman mumbling) It's your clothing.
- [00:07:54.570]Alright did you change anything?
- [00:07:55.860]Are you wearing turtlenecks or v-necks, what's the style?
- [00:07:59.530]And the net worth, did you?
- [00:08:02.565](woman mumbling)
- [00:08:03.398]Or lose weight?
- [00:08:04.430]All right that's the picture that
- [00:08:06.130]we're going to work with here.
- [00:08:07.981]So commit that diagram to memory
- [00:08:09.523]because they're going to work with it again.
- [00:08:11.290]Alright so here is the structure of a balance sheet.
- [00:08:15.840]The balance sheet consists of four quadrants.
- [00:08:19.403]In the top part of your balance sheet, these are all
- [00:08:23.240]that we refer to as your current assets and liabilities.
- [00:08:27.730]The bottom half we call that you're non-current,
- [00:08:30.900]non-current assets and liabilities.
- [00:08:33.600]To be fair here, there are some organizations that you
- [00:08:36.870]will be working with that has an intermediate asset class
- [00:08:41.430]and I want you to be aware of that,
- [00:08:43.300]but right now what you're staring at, this is what the
- [00:08:46.450]center or the Council for Farm Financial Standards has
- [00:08:50.040]setup as this is what your balance sheet should look like.
- [00:08:54.230]In the corner then we have net worth and our owner equity.
- [00:08:56.720]So let's start with current assets.
- [00:08:59.020]Give me an example of a current asset
- [00:09:02.100]as you would understand it, ma'am?
- [00:09:04.827](woman mumbling)
- [00:09:05.660]A cow and calf, that's a good one,
- [00:09:08.810]but is that a current asset that
- [00:09:10.900]we use up in one year and it's gone
- [00:09:12.930]or do your cows, well I don't know maybe your cows
- [00:09:15.040]and calves disappear in a year but a cow and a calf--
- [00:09:18.521](woman mumbling)
- [00:09:19.354]You sell them.
- [00:09:20.910]So there we go, there's a distinction
- [00:09:23.200]that we're going to make.
- [00:09:24.040]You've got to be breeding heard that's going to be in the
- [00:09:27.769]non-current asset because it's a round year after year
- [00:09:31.000]but those marketing calves, that is a current asset.
- [00:09:34.010]Good point.
- [00:09:35.050]What other?
- [00:09:35.900]Cash.
- [00:09:36.733]Love cash.
- [00:09:37.566]We're going to be demonstrating cash.
- [00:09:39.490]Grain. Grain in a grain bin
- [00:09:42.160]and I'm not talking the ones that
- [00:09:44.013]hold it two, three and four years before they sell it okay.
- [00:09:48.120]I know I'm not an audience that does that
- [00:09:50.000]but I have been in an audiences for that does happen.
- [00:09:52.710]I've got two years.
- [00:09:54.340]Two years?
- [00:09:55.173]All right you're in the non-current assets okay.
- [00:09:57.620]Well I've got, part of its current.
- [00:09:59.690]Part of it, okay.
- [00:10:02.720]Great, accounts receivable.
- [00:10:05.310]This is who owes you money and the next 365 days.
- [00:10:10.960]What else is in current asset category?
- [00:10:13.531](woman mumbling)
- [00:10:17.240]Manure, you know I don't know if
- [00:10:18.810]I've ever put a dollar amount on that.
- [00:10:21.071](laughing)
- [00:10:22.289](woman mumbling)
- [00:10:23.860]Now there's a point, prepaid fertilizer.
- [00:10:26.620]Valuing that manure and I know we've got a lot of it
- [00:10:29.320]here in the state with what, 1.9 million head of cattle.
- [00:10:32.640]You've got some manure to move around okay.
- [00:10:36.768](woman mumbling)
- [00:10:38.060]Prepaid inputs is another one.
- [00:10:40.550]So okay, we've got a good feel here now for
- [00:10:42.380]what goes into the current assets.
- [00:10:44.180]Give me an example of a current liability.
- [00:10:48.767](woman mumbling)
- [00:10:51.020]A combine payment that's due in the next year.
- [00:10:53.190]Is that all the combine payment doing the next year?
- [00:10:56.508](woman mumbling)
- [00:10:59.544]Okay, one of the big problems we find on balance sheet
- [00:11:03.760]is where do you put that current portion of the debt
- [00:11:08.010]that is due in the next 365 years,
- [00:11:10.920]but current portion goes up in the current non-liabilities.
- [00:11:16.060]Where the rest of it goes is in that
- [00:11:19.670]lower right-hand corner non-current liabilities.
- [00:11:23.270]Important because what we see happening is we have that
- [00:11:26.720]debt showing that it's going out in the top but they don't
- [00:11:30.470]take it off the bottom and boy will that make your
- [00:11:32.750]balance sheet look a little skewed.
- [00:11:35.050]We don't want to do that.
- [00:11:36.889]We want an accurate picture of our family okay.
- [00:11:40.520]Alright so very good to start off with that.
- [00:11:43.305]The current portion of your debt.
- [00:11:46.070]Any?
- [00:11:47.802]What's that?
- [00:11:49.682]Payroll, I've got to look that up.
- [00:11:52.330]That's more, I think that might be more of a cash,
- [00:11:54.680]okay that when I'm not sure.
- [00:11:56.840]Will I hold your thought on this.
- [00:11:58.994]Catch you up on that.
- [00:12:00.190](woman mumbling)
- [00:12:01.023]Maybe that's what I'm looking for is the liability.
- [00:12:03.750]Payroll issues themselves tend to
- [00:12:05.710]be more of the cash flow itemized.
- [00:12:11.142](woman mumbling)
- [00:12:11.975]Accrued real estate taxes would going to that
- [00:12:15.000]and she used a big word here.
- [00:12:16.920]Say that word again.
- [00:12:18.670]Accrued. Accrued.
- [00:12:22.440]Do we understand what accrued is?
- [00:12:24.990]Accrued means up until this point so if you've got a lot of
- [00:12:29.540]loans out there or if you got a lot of things that are due
- [00:12:33.350]at different times, we stop it
- [00:12:35.590]and we say what is accrued to this point?
- [00:12:39.340]And it is one of the points that I want to point
- [00:12:41.260]out to you that when we're looking at records, we can tell
- [00:12:43.840]if you're going uphill or downhill in this financial world
- [00:12:47.880]by looking at accrued interest on your balance sheets.
- [00:12:53.267]Okay so we've got a good list going there.
- [00:12:54.840]Whatever we got under non-current assets?
- [00:12:56.840]What goes into that category?
- [00:12:59.590]The lady's cows?
- [00:13:03.920]Land, equipment.
- [00:13:07.481](woman mumbling)
- [00:13:08.314]Hmm? (woman mumbling)
- [00:13:09.520]IRAs would be in there, your investments.
- [00:13:13.160]So very good.
- [00:13:14.300]Okay we've got the non-current side and really this bottom
- [00:13:18.120]half of the balance sheet goes pretty quick at this
- [00:13:20.240]point because what goes under non-current liabilities?
- [00:13:26.561](woman mumbling) (laughing)
- [00:13:27.990]And you go to your banker and you say I'm preparing
- [00:13:30.360]my balance sheet what is my interest accrued to this date
- [00:13:33.380]and what is the remaining principle that I have
- [00:13:36.910]on my debt and it goes into your balance sheet?
- [00:13:41.760]Then just like a balance sheet that we said
- [00:13:44.660]we take everything on the left side subtract liabilities
- [00:13:49.410]on the right side and that comes up our net worth.
- [00:13:53.570]Now just net worth by itself is a nice
- [00:13:56.740]starting point but it doesn't tell me much.
- [00:14:00.680]What I want to do is look at where
- [00:14:01.930]did you come from for your net worth.
- [00:14:03.650]Did you start with nothing and build it or are you, well
- [00:14:09.560]it's just net worth by itself,
- [00:14:11.420]it's one of those nice numbers.
- [00:14:13.190]It works better when you put it in a trend line
- [00:14:16.659]so keep in mind and I just kind of I think of it
- [00:14:21.123]as dating a man you know.
- [00:14:22.359]If I'm online and he says here's
- [00:14:25.420]a picture of him, that's his net worth.
- [00:14:28.230]Okay is he 16 years old in the picture
- [00:14:31.390]or is he 66 years old in the picture?
- [00:14:34.240]You see I need the context around him
- [00:14:37.780]so I know what I'm doing.
- [00:14:41.140]All right there's our formula.
- [00:14:42.390]We have key ratios from the balance sheet that
- [00:14:44.660]we're going to actually perform looking at these things.
- [00:14:48.820]If you've never looked at these ratios on your balance
- [00:14:51.160]sheet, here's an opportunity for you to practice.
- [00:14:53.700]Take it on home and use it on your
- [00:14:55.070]own working capital, that asset ratio, net worth,
- [00:14:58.090]hairstyle, clothing and did you gain
- [00:15:00.470]or did you lose weight.
- [00:15:03.160]Alright so we're going to analyze a balance sheet.
- [00:15:07.240]Now it says green on your hand out but
- [00:15:10.840]it is a yellow hand out.
- [00:15:12.450]First thing that I want you to do is everyone
- [00:15:15.558]you have a page of numbers.
- [00:15:20.230]Or most of you do.
- [00:15:24.650]Okay here's a little game that I'm going
- [00:15:26.880]to play with everybody here.
- [00:15:31.450]I'm going to give you a set of instructions, 15 seconds to
- [00:15:34.990]execute on them and then we're going
- [00:15:39.480]to measure results okay.
- [00:15:41.670]So here's what I want you to do.
- [00:15:42.770]On one side of this piece of paper I want you to circle the
- [00:15:45.430]numbers from one through as far
- [00:15:47.980]as you can get in 15 seconds.
- [00:15:50.930]On your mark, get set, go.
- [00:16:05.520]Five, four, three, two, one, stop.
- [00:16:13.030]Alright how many of you got six numbers, one through six?
- [00:16:18.090]Good.
- [00:16:19.020]One through 14?
- [00:16:21.450]Okay, we're starting to drop off
- [00:16:22.580]pretty quick from one to six.
- [00:16:26.300]Okay all right now here's the cool thing.
- [00:16:28.900]I mean that's kind of the general instruction about it.
- [00:16:32.440]Here's the hint now and it's always in the hint
- [00:16:35.650]that you find the valuable information correct?
- [00:16:38.320]I want you to take your paper and I want
- [00:16:40.270]you to fold it into quarters.
- [00:16:46.070]It doesn't matter.
- [00:16:47.720]Just folded in the quarters at this point
- [00:16:52.880]and then I want you to open it up.
- [00:16:56.900]Now on the side that you did not write
- [00:17:03.333]I want you to get ready on this,
- [00:17:04.740]and here's your additional set of instructions.
- [00:17:08.480]I want you to circle from one as far as you can get and
- [00:17:12.070]you're going to find that is going to run like a clock.
- [00:17:14.640]Number one is in the first quadrant, two, three, four.
- [00:17:20.960]Alright 15 seconds.
- [00:17:22.940]On your mark, get set, go.
- [00:17:38.010]Five, four, three, two, one, you're done.
- [00:17:46.000]All right, let me ask how many of you
- [00:17:47.670]got farther than you did the first time?
- [00:17:52.920]I cannot help you if you did not get
- [00:17:54.830]further than the first time. (audience laughs)
- [00:17:57.030]You are excused from the rest of the class.
- [00:18:01.616]How helpful was that little bit of extra information to you?
- [00:18:06.000]Tons and that's what I'm going to do with you here now.
- [00:18:08.720]We're going to give you those extra little hints.
- [00:18:10.800]You have been looking at balance sheets and keeping
- [00:18:13.130]records and doing taxes and income taxes for years now.
- [00:18:17.300]We're going to do the little extra steps now that are
- [00:18:20.140]going to put some numbers in your hands that you are able
- [00:18:25.850]to navigate through these records a little bit better.
- [00:18:28.710]All right, you all have a balance sheet
- [00:18:34.230]that is in front of you.
- [00:18:35.140]This is a balance sheet for John and Sally Smith.
- [00:18:40.240]Sorry for the tiny print.
- [00:18:41.640]Those of you that need--
- [00:18:43.193]Do you have more of those?
- [00:18:44.026]I'll give you mine.
- [00:18:45.370]There we go.
- [00:18:46.430]So you can practice.
- [00:18:48.690]All right.
- [00:18:49.780]Do you have some extra ones?
- [00:18:50.950]You know I don't.
- [00:18:52.600]My supply that I brought if some of you can buddy up here
- [00:18:56.580]that will help me out but otherwise that would take of it.
- [00:19:00.590]Okay so here's what I'm going to do.
- [00:19:03.080]Now the working capital is the number that we use on these
- [00:19:09.410]farm operations and ranch operations to determine what kind
- [00:19:14.561]of financial footing are they on before
- [00:19:15.900]they begin the next year, the next 365 years.
- [00:19:19.100]Working capital, the formula is a very simple
- [00:19:22.800]mathematic formula, write this down.
- [00:19:25.290]It is current assets minus current liabilities.
- [00:19:32.650]That is all were looking for.
- [00:19:34.820]So I want you to fill up your form
- [00:19:36.970]and you'll notice that there's two columns.
- [00:19:38.750]There's the beginning and the ending.
- [00:19:42.040]There's 2001, 2002.
- [00:19:44.670]I want you to figure out the working capital
- [00:19:47.804]for the first balance sheet 2001, 2002.
- [00:19:52.170]The first working capital for 2001, 2002.
- [00:19:57.480]Be very careful where your eyes go on that balance sheet.
- [00:20:00.960]Help each other out, work with each other.
- [00:20:03.478](woman mumbling)
- [00:20:30.740]Okay did everyone kind of come up with the numbers?
- [00:20:33.180]As I said it's a pretty simple mathematic equation.
- [00:20:35.860]Working capital is current assets minus current liabilities.
- [00:20:39.880]What you can convert to cash in one year
- [00:20:42.013]and what you have financial obligations for one year.
- [00:20:47.020]Alright then I want you to do that same operation
- [00:20:50.100]for the 2002 one, the column that's marked 2002.
- [00:20:59.642]And again be careful where your eyes go because you're
- [00:21:01.300]looking for current assets minus current liabilities.
- [00:21:18.130]Okay we got our two numbers now?
- [00:21:22.243]I see people still calculating.
- [00:21:30.060]Some of you are not using a calculator good,
- [00:21:33.831]you still have a brain.
- [00:21:35.406]All right.
- [00:21:37.000]I want you to look at those two numbers,
- [00:21:39.750]one representing the beginning of the ending here,
- [00:21:42.640]one year in the second year and I want you to tell me
- [00:21:47.870]is it a positive number or is it a negative number?
- [00:21:52.541]It's a positive number.
- [00:21:55.810]Now in the ratio analysis, we look at that number
- [00:22:01.660]and the bigger the number the better it is.
- [00:22:04.120]That means you've got a good solid financial footing
- [00:22:07.060]to begin with, to start off with.
- [00:22:09.540]What happens if that number is zero or negative?
- [00:22:15.204]What is that going to tell you about
- [00:22:18.770]your upcoming farm year or ranching year?
- [00:22:22.260]If the very first calculation comes up being negative,
- [00:22:25.410]working capital and other words you've debt more of that
- [00:22:28.552]coming then you got the ability to pay
- [00:22:30.150]this day that you do your balance sheet.
- [00:22:33.930](woman mumbling)
- [00:22:35.718](sighing)
- [00:22:37.610]Have a good banker, honey we're in trouble,
- [00:22:41.750]we've got all kinds of reactions
- [00:22:44.282]but what it's doing here is it's giving us a heads up.
- [00:22:45.670]It's telling us a we cannot trip,
- [00:22:48.470]we cannot afford a drought or bad prices.
- [00:22:51.220]We've got to do some risk management planning.
- [00:22:53.510]We've got to work with that banker
- [00:22:54.780]that says hey look I'm doing my balance sheet.
- [00:22:57.330]I've got a negative working capital.
- [00:22:59.160]I may need an extended line of credit here.
- [00:23:01.400]Let's sit down and talk.
- [00:23:02.550]Not missed a payment and then go to the banker.
- [00:23:06.020]We don't like that.
- [00:23:06.960]In fact what 50 Shades of Green,
- [00:23:08.860]I don't know has he done his presentation yet?
- [00:23:12.120]Okay Fifty Shades of Green is going to tell you we want
- [00:23:14.620]to talk to you early and there is one of your indicators.
- [00:23:17.410]Now between one or two, what happened
- [00:23:19.570]to working capital on this farm?
- [00:23:21.360]Did it go up or did it go down?
- [00:23:23.720]It went up so all right.
- [00:23:25.190]He did something right or they did something right on this
- [00:23:27.186]operation to wear they actually had a little more working
- [00:23:30.540]capital at the end of the year then when they started.
- [00:23:33.418]All right not always a case but you know
- [00:23:35.340]we're just doing this for the exercise here folks.
- [00:23:38.870](woman mumbling)
- [00:23:39.890]Yeah, there we go.
- [00:23:41.773]We had uses for that cash but okay,
- [00:23:45.482]all right so that is working capital.
- [00:23:48.470]That's one of the very first heads up that we've got
- [00:23:50.820]and we know that since 2013, US farmers have been spending
- [00:23:55.590]down there working capital and in fact and 16 and 17,
- [00:23:59.630]the University of Illinois has said we have gone negative
- [00:24:04.280]on working capital on a lot of our farm operations
- [00:24:07.690]and so we know that this tidal wave
- [00:24:10.870]is headed in our direction.
- [00:24:13.181]Debt to asset ratio.
- [00:24:15.370]Now it will depend on some of your
- [00:24:17.720]lending institutions that you look at.
- [00:24:19.820]The opposite of debt to asset ratio is the equity
- [00:24:23.410]to asset ratio and depending on your institution
- [00:24:26.980]that you're working with, you might want to look
- [00:24:29.680]at this two different ways.
- [00:24:31.260]So the debt to asset ratio is again a mathematic
- [00:24:35.390]very simple equation where you're going to take
- [00:24:37.700]your total liabilities on the right side of that balance
- [00:24:44.160]sheet, total liabilities and you're going
- [00:24:48.845]to divide it by the total assets.
- [00:24:55.300]So your debt load is going to be
- [00:24:57.840]divided into your asset base.
- [00:25:01.210]I want you to do that for periods one and two.
- [00:25:04.290]Again, be very careful where your eyes go on the line here.
- [00:25:07.530]You want to look for total liability,
- [00:25:11.190]not total non-current but total liability.
- [00:25:17.070]It's not a straight across on this particular balance sheet.
- [00:25:24.890]On this one you might need a calculator.
- [00:25:47.100]Alright then I would like you to do that
- [00:25:48.960]exact same thing with the 2002 line.
- [00:26:13.320]Okay let's check answers here.
- [00:26:18.390]What did you come up with for the first,
- [00:26:20.850]the beginning debt to asset ratio?
- [00:26:27.890].53.
- [00:26:30.513](woman mumbling)
- [00:26:32.110]Aha, what does she do?
- [00:26:34.040]Watch your eyes.
- [00:26:35.070]Look at your eyes.
- [00:26:35.960]You picked up the total non-current number.
- [00:26:39.640]You need to go one step down, that's why I said be
- [00:26:41.670]very careful, that's that extra bit of instruction.
- [00:26:44.180]Be very careful that you are picking up
- [00:26:46.450]total liabilities divided by total assets.
- [00:26:53.170]Hmm?
- [00:26:54.735](woman mumbling)
- [00:26:56.540]Is that the answer one, no, it should be .53.
- [00:27:01.559](woman mumbling)
- [00:27:08.000]Yeah here's the number you're going to be using.
- [00:27:11.040]You're using the total asset line.
- [00:27:13.740]It's in the lower left hand corner of the sheet
- [00:27:17.530]and total liabilities and owner's equity.
- [00:27:23.723]Let's see owner Equity, you want to use a total liabilities
- [00:27:27.130]and that'll be this number just a little bit about above it.
- [00:27:30.440]So follow your eyes and total liabilities.
- [00:27:34.020]It's important that you pick up the right numbers
- [00:27:35.620]if we're going to do the ratio check here.
- [00:27:38.950]You guys are okay so you should come up with that .53.
- [00:27:45.480]What was the second number that you came up with?
- [00:27:49.843].45, .47, you're close enough, you're close enough on that.
- [00:27:55.000]Alright so let's talk about one of those numbers telling us.
- [00:27:58.333]The standards, the Center for Farm Financial Standards
- [00:28:03.200]again says that if you're in a debt to asset ratio of .4
- [00:28:08.400]or higher and you mostly own your assets that you have
- [00:28:14.740]a yellow flag on your back and we want to be careful about
- [00:28:16.730]extending any more debt, taking any more debt on.
- [00:28:20.050]What was the number that you came up with the first time?
- [00:28:25.100].53.
- [00:28:26.730]So that is above that yellow flag.
- [00:28:32.089]Generally, when we get to point six, seven
- [00:28:34.970]or eight that's a red flag.
- [00:28:36.560]That same well why we have a lot of debt here
- [00:28:39.510]and we may not have the cash flow to support it.
- [00:28:42.870]So that that's an asset ratio if you are mostly owned assets
- [00:28:46.820]as .4 is the yellow flag I should say, the yellow flag.
- [00:28:52.380]Cautious about taking all my debt.
- [00:28:54.730]Alright from one to two did the asset
- [00:28:58.050]or did the debt to asset ratio go up or down?
- [00:29:02.187]It went down.
- [00:29:03.020]The man or the woman whoever is John
- [00:29:05.280]and Sally Smith are making progress.
- [00:29:07.880]That number is getting smaller.
- [00:29:09.290]Debt to asset ratio, the smaller the
- [00:29:11.890]number the happier we are.
- [00:29:13.700]Now if you're working with one of the organizations
- [00:29:16.080]that require equity to ask that,
- [00:29:18.650]that's how they want to talk to you fine with me.
- [00:29:20.900]All you got to do is take that number
- [00:29:24.041]and subtract it from one and it's the exact opposite.
- [00:29:26.070]So a .4 debt to asset ratio would have a .6 equity
- [00:29:32.850]to asset ratio it just depends on who
- [00:29:35.180]you're doing business with.
- [00:29:36.970]So just to kind of keep you informed that there's
- [00:29:39.720]a couple of different ways in looking at it.
- [00:29:41.340]Debt to asset ratio is preferred by most
- [00:29:45.020]but occasionally you'll run into that institution
- [00:29:47.220]that wants to talk equity to asset to you and of course
- [00:29:50.190]equity to asset ratio, the bigger the number
- [00:29:52.770]the happier we are, and finally net worth.
- [00:29:57.770]On net worth we've already got that
- [00:29:58.960]calculated on for you on this thing.
- [00:30:00.580]Alls you need to do is talk with the numbers for us
- [00:30:03.120]and where do you look for the net worth?
- [00:30:07.870]Your owner equity is interchangeable term
- [00:30:13.270]on these farm records.
- [00:30:17.950]So just circle those two numbers that you see
- [00:30:20.240]as net worth owner equity, interchangeable terms.
- [00:30:24.670]There are some technical difference is there but I'm not
- [00:30:27.160]going to take it into it because as I've said you got
- [00:30:29.260]an accountant to take you into that kind of stuff.
- [00:30:31.540]Owner equity and net worth the same thing for us here and
- [00:30:36.290]when you do the calculation of that what are you find?
- [00:30:39.920]Not a calculation but what's your observation?
- [00:30:42.500]Did we gain weight or did we lose weight?
- [00:30:46.070]We gain weight.
- [00:30:46.903]This is the only room that you're going to ever be
- [00:30:48.510]in that I'm gonna to tell you gaining weight is good girls.
- [00:30:51.190]I mean this is outstanding.
- [00:30:54.152]So those are the three ratios that we want
- [00:30:57.160]to work at with from the balance sheet.
- [00:30:59.670]Now in the financial world there are 21 ratios that
- [00:31:03.940]we work with to say is the farm in good shape, bad shape.
- [00:31:06.960]Okay I have given you the three key ones that give you
- [00:31:12.020]the heads-up, am I in good shape or am I going to little
- [00:31:15.520]help or do we need to go get some professional
- [00:31:17.990]help here, the three ratios.
- [00:31:20.620]Working capital, debt to asset, net worth.
- [00:31:25.410]All right now you saw from that first diagram that
- [00:31:28.343]we were running our cash flow and then we stopped
- [00:31:31.750]to measure to say are we making money?
- [00:31:35.150]Are we profitable?
- [00:31:36.870]Is it's a good thing for us to be doing?
- [00:31:39.270]So here is an income statement structure
- [00:31:42.420]and income statements are accrual adjusted.
- [00:31:46.239]That means you cannot sell out the cattle herd
- [00:31:47.950]and look like you have a huge cash year because what
- [00:31:51.720]did you have to sell to have a huge cash year?
- [00:31:54.930]You had to sell the cows and so and accrual adjusted here,
- [00:31:59.667]we're going to show the cash is up
- [00:32:01.080]but that cattle numbers are down.
- [00:32:03.620]So we balance it out.
- [00:32:05.500]On a strictly cash basis wow,
- [00:32:08.100]it looks like you had a tremendous year.
- [00:32:11.453]Yeah, you liquidate a herd and you are, on the cash side.
- [00:32:14.230]So income statement is always accrual adjusted
- [00:32:17.500]and we're going to start off and is very simplified here
- [00:32:20.240]because there's always extra lines that I leave out
- [00:32:23.040]because it's like I said we're just here
- [00:32:25.300]to pick out those things that we could use.
- [00:32:27.886]Gross revenues and in my example
- [00:32:30.750]is $500,000 is my gross revenue.
- [00:32:33.930]Then we're going to from that gross revenue
- [00:32:36.420]take operating expenses of $250,000.
- [00:32:41.096]Now once you subtract operating expenses
- [00:32:44.740]and I'll explain some differences as we go through here,
- [00:32:47.280]from that $500,000, you come up with a figure called EBITDA.
- [00:32:53.670]Anybody ever hear of EBITDA?
- [00:32:56.787]Okay you tell me what it is because I can never remember.
- [00:33:00.500]EBITDA is earnings before interest
- [00:33:08.110]taxes, depreciation and amortization,
- [00:33:14.060]EBITDA, E-B-I-T-D-A
- [00:33:20.180]and what that is EBITDA,
- [00:33:22.910]in a financial way of looking at it, that is a pool of
- [00:33:26.340]money from which we are going to do everything else.
- [00:33:30.220]If you are not a cost container, in other words your
- [00:33:34.250]operating expenses are big, what happens to your EBITDA?
- [00:33:41.323]It shrinks.
- [00:33:42.156]That pool of money that you now have to draw from stuff,
- [00:33:46.440]to pay your interest to pay your debt down is less.
- [00:33:50.910]So cost containers you can see where it comes in.
- [00:33:53.620]All right then we take depreciation expense off.
- [00:33:57.490]So that's $250,000, 50,000 and our total
- [00:34:01.406]operating expense is now $300,000.
- [00:34:10.090]Easy enough at this point.
- [00:34:12.140]Notice that further on down the difference between the
- [00:34:17.560]revenue and expense is called your operating margin.
- [00:34:22.370]It's a term that you're going to run into.
- [00:34:25.446]The operating margin, the bigger the margin
- [00:34:26.460]the happier you are.
- [00:34:28.170]Smaller, okay you're not cost containing.
- [00:34:31.840]So something's going on here.
- [00:34:33.440]All right notice that financing expenses
- [00:34:37.059]are not included in the operating expenses.
- [00:34:41.640]We sort those off because there is an efficiency
- [00:34:45.530]ratio you're going to calculate for me here shortly
- [00:34:48.442]to find out are you across container?
- [00:34:52.340]Do you have your debt under control and we can't do
- [00:34:55.512]that if we take your interest, your financing expenses
- [00:34:59.580]and clump it all together without operating expenses.
- [00:35:03.840]So we have a separate category for that and that is $25,000.
- [00:35:08.950]So our terminology net farm income from operations
- [00:35:14.015]is a subtraction of $175,000 is what we now have for this
- [00:35:20.330]operation and out of net farm income from operations,
- [00:35:24.958]what we use that money for?
- [00:35:29.980]Net farm income, would we use that money for?
- [00:35:35.150]How many of you pay yourself on the farm.
- [00:35:41.460]What did you call it?
- [00:35:43.139](woman mumbling)
- [00:35:43.972]Living expenses comes out of that
- [00:35:46.520]number right there, 175000.
- [00:35:50.190]USDA says that the American farmers,
- [00:35:52.950]we run around $69,000 for family living on us farms.
- [00:35:58.130]We are ahead of our city cousins now.
- [00:36:00.740]That used to be everybody felt sorry for us in the country.
- [00:36:04.010]It's now us feeling sorry for them because we are above
- [00:36:08.026]them and we have been for several years now.
- [00:36:09.860]So family living we take out of that a 175000.
- [00:36:14.240]What else comes out of that 175000?
- [00:36:18.838](woman mumbling)
- [00:36:19.671]What's that? Principal payments.
- [00:36:20.910]Principal payments comes out of there.
- [00:36:24.573](woman mumbling)
- [00:36:26.580]Investments come out over there.
- [00:36:31.490]Anything else?
- [00:36:32.920]You haven't gotten the big one yet.
- [00:36:35.020]I have to die and pay?
- [00:36:38.350]Your income taxes come out of there.
- [00:36:40.520]So later on when we start looking at how all the stuff fits
- [00:36:43.020]together I'm going to show you how that impacts on that.
- [00:36:46.290]Net farm income takes care of four things,
- [00:36:48.750]your family living, your investments, your pay down on debt
- [00:36:52.930]and what was the other one?
- [00:36:55.590]Income taxes okay.
- [00:36:58.176]So that is the income statement.
- [00:37:00.988]Now from that income statement we can do some quick dirty
- [00:37:03.972]ratios that give us a handle are we cost containers?
- [00:37:09.610]Are we oversized and over equipped?
- [00:37:13.180]What do we do with these ratios?
- [00:37:15.110]Well here are the four percentages that we look at.
- [00:37:18.290]We have the operating expense category.
- [00:37:20.860]We have the depreciation expense category
- [00:37:23.370]and the interest expense category and you'll notice that
- [00:37:26.580]we have all of those sorted out on our income statement.
- [00:37:30.300]So we're able to do a quick and dirty on that form
- [00:37:36.070]and we're going to have you do that, you should have a white
- [00:37:38.910]piece of paper is how the pieces fit together.
- [00:37:52.410]All right now my numbers might be just a little bit
- [00:37:54.600]different than your numbers,
- [00:37:58.650]but here's how it's going to work.
- [00:38:01.093]I'm going to have you use the paper that's
- [00:38:03.460]in front of you for calculating those four ratios.
- [00:38:11.140]Let's look at where do we have to find
- [00:38:14.830]that information on this piece of paper.
- [00:38:18.044]I'm going to find the presentation because I don't
- [00:38:21.330]want to flip back and forth between the screens here
- [00:38:24.442]so is there another hand out here for me?
- [00:38:26.960]I got to cheat now.
- [00:38:34.555]Alright how are we doing on time by the way?
- [00:38:38.210]My timer?
- [00:38:40.007](woman mumbling)
- [00:38:42.690]Ten after two and a half until 5 after?
- [00:38:46.748](laughing)
- [00:38:48.728]Two?
- [00:38:50.264]45.
- [00:38:51.097]2:45, or well we're in good shape then.
- [00:38:53.432]Okay so this is how the pieces are going to fit together.
- [00:38:55.650]You were going to take the information that is on that
- [00:38:58.430]white sheet and you're going to calculate the financial
- [00:39:02.120]deficiency ratios and the first one you're going
- [00:39:05.100]to do is the operating expenses.
- [00:39:08.258]So I want you to find the operating expenses
- [00:39:10.573]on your white sheet and here's how this breaks out.
- [00:39:17.460]Upper left hand corner, your balance sheet.
- [00:39:23.130]Beneath the balance sheet we're going to show you
- [00:39:25.650]cash flow and right over here is the income statement.
- [00:39:33.780]The expressions or the ratios that we're going to
- [00:39:37.378]be looking at are all in relation to gross revenue
- [00:39:42.670]and mine says 101.
- [00:39:44.330]What is your number here?
- [00:39:47.191]360. 360 yeah.
- [00:39:48.510]And the numbers are going to be a little bit
- [00:39:49.610]different from what's up on the screen
- [00:39:51.390]but look at your number.
- [00:39:53.439]So you're going to take that 364?
- [00:39:56.515](woman mumbling)
- [00:39:58.851]Okay so that is your gross revenue and above that
- [00:40:01.690]number you are going to put the operating expenses.
- [00:40:08.090]Operating expenses are total operating expenses,
- [00:40:17.120]you'll find a category here.
- [00:40:18.940]Total operating expenses, take that number
- [00:40:22.720]divide it by that 364 and some change whatever
- [00:40:26.280]you said and tell me what number you come up with.
- [00:40:42.758]You should come up with something close to 60%.
- [00:40:51.210]Again you're going to take total revenue
- [00:40:55.820]and divide it into the line that says
- [00:40:59.060]total operating expenses.
- [00:41:10.042]And you come up with around 60% right?
- [00:41:13.590]You got 88?
- [00:41:14.950]Alright this is my example of we've got
- [00:41:16.620]a little trouble with cost-containment here.
- [00:41:19.680]Like I said I got several of these.
- [00:41:23.611]You want to take the operating total operating expenses.
- [00:41:32.860]Total operating expenses divided by gross revenue.
- [00:41:52.030]And what do you come up with?
- [00:41:56.960]188.
- [00:41:57.793]I'm looking at this here and I'm seeing that we have got,
- [00:42:00.900]here's our gross revenue, cash expenses,
- [00:42:03.335]non-cash depreciation and we've actually
- [00:42:06.300]got depreciation built into this one here.
- [00:42:09.630]So let's see here.
- [00:42:14.070]Let's just go with the flow here.
- [00:42:15.590]88%.
- [00:42:17.550]If I told you that the average cost containing farmer
- [00:42:22.810]has expenses of 60% of the revenue that they draw in,
- [00:42:27.690]what conclusion would you make
- [00:42:29.972]about this particular operation?
- [00:42:32.290]You look at your numbers and you see you're at 80%.
- [00:42:38.050]Well I don't know if you're exactly in trouble
- [00:42:40.570]but you're leaving money, you're sending money to the people
- [00:42:46.770]who you are paying seed and feed and fertilizer to.
- [00:42:50.800]You know what can you do to contain expenses?
- [00:42:53.320]Remember that's one of the characteristics
- [00:42:55.060]your cost container and if that ratio was above
- [00:42:58.140]that 60% mark, livestock you can be a little bit
- [00:43:01.030]higher because livestock is a little bit higher.
- [00:43:02.860]You've got feed and all that kind of stuff involved there
- [00:43:06.479]so you can be a little bit higher but at 88% here,
- [00:43:09.250]I would say that this farmer is having
- [00:43:12.630]a little trouble with cost containment.
- [00:43:16.135]Gives us a place to go look.
- [00:43:17.080]Now can we stop buying the feed from our nephew
- [00:43:20.310]who works for the company that has the highest seed?
- [00:43:25.730]And you're doing it because you want to keep him or her
- [00:43:29.010]afloat and now you are experiencing some high seed cost.
- [00:43:33.270]So just a place for us to go look
- [00:43:35.750]when we are examining that.
- [00:43:37.750]Now I want you to take the depreciation expenses.
- [00:43:42.440]Take the depreciation expense, $68,000 right here,
- [00:43:48.380]land, building and equipment.
- [00:43:56.540]And divide that by the total revenue.
- [00:44:01.360]Again everything is coming back to that total revenue.
- [00:44:12.250]What do you come up with?
- [00:44:16.670]Depreciation expense has its line right here 68,000.
- [00:44:23.391](woman mumbling)
- [00:44:24.450]Oh mine is 68000.
- [00:44:25.990]What's your line say?
- [00:44:27.625](laughing)
- [00:44:28.458]33,000. 33,600, put that in.
- [00:44:33.060]It's right here.
- [00:44:33.893]What's in front of you is what I'm working with.
- [00:44:36.480]Divided by the total revenue line.
- [00:44:40.432]The total revenue line is up here on the top here.
- [00:44:42.260]It all comes back to comparing to your total revenue.
- [00:44:50.976]And what number do you come up with?
- [00:44:54.830].09, the standard that we use and by the way if you're
- [00:44:58.780]wondering where some of these standards are,
- [00:45:02.330]notice in your hand out go to the very back page
- [00:45:07.320]and there's your summary of key ratios, the benchmarks.
- [00:45:12.260]So when you are using this at home
- [00:45:15.450]and putting in your numbers and my farm column,
- [00:45:19.740]you're able to see if you're in the green, red
- [00:45:22.170]or the yellow with your analysis on your farm operation.
- [00:45:25.820]So this one here is under the let's see, that's asset,
- [00:45:31.740]this one financial efficiency, depreciation expense it's
- [00:45:37.300]compared to the capital replacement
- [00:45:39.160]or how much of your equipment you need to replace.
- [00:45:42.270]I'll tell you it's around 10% and this particular
- [00:45:46.180]operation is what?
- [00:45:47.637]Nine.
- [00:45:48.470]Nine, I would call them right sized.
- [00:45:51.240]I would say they're okay that or they're working with some
- [00:45:54.380]really old equipment and if you're working with really old
- [00:45:57.760]equipment where do you go look in your records
- [00:46:00.870]to see what kind of help do you need?
- [00:46:05.040]If you've got old equipment what does it do?
- [00:46:06.850]Doesn't just work flawlessly through harvest?
- [00:46:10.819](woman mumbling)
- [00:46:12.070]Go check that repair line and when repair line
- [00:46:16.090]starts exceeding that depreciation expense,
- [00:46:19.280]maybe it's time to start rolling that equipment.
- [00:46:23.140]There's your guide line.
- [00:46:24.580]So if you're right around that 10% on depreciation
- [00:46:28.440]expense compared to your revenue line, probably okay.
- [00:46:35.140]All right so that is depreciation expense.
- [00:46:37.730]The other ratio I want you to look at is
- [00:46:47.937](mumbling),
- [00:46:49.290]is the interest expense ratio
- [00:46:52.280]and where did you find interest expense on here?
- [00:46:55.890]Look under your expense category and you should find
- [00:47:05.342]cash, interest and operating expenses.
- [00:47:09.320]So right in here you have to add a couple
- [00:47:13.140]of numbers up it looks like.
- [00:47:15.100]That is total debt and that is a capital lease if any
- [00:47:21.330]of your in capital leases.
- [00:47:24.630]So add a couple of numbers together and divide
- [00:47:26.780]that number by the total revenue again
- [00:47:30.680]and tell me what you come up with.
- [00:47:47.483](woman mumbling)
- [00:47:49.710]Interest expense.
- [00:47:51.920]Again, remember how when that income state
- [00:47:53.390]statement we was looking and you could see where it was
- [00:47:58.534]sorted out but it was not up in the operating expense.
- [00:48:02.820]It was a finance expense charge.
- [00:48:04.680]That's why we do that so we can do the analysis
- [00:48:08.050]on the interest expense you are paying and compared to the
- [00:48:12.183]total revenue you are generating from this farm operation.
- [00:48:16.346](woman mumbling)
- [00:48:18.160]There's a couple on your sheet here I think.
- [00:48:21.080]I know one is this one.
- [00:48:23.230]All right so we got cash,
- [00:48:24.990]interest expense that is your total debt
- [00:48:27.650]in capital leases and cash income expense from operating.
- [00:48:33.830]So of those are the ones that you're going to add together.
- [00:48:38.550]Anything that has the word interest expense behind
- [00:48:41.530]it there you going to want to add those numbers up.
- [00:48:46.560]You are dividing it into the gross revenue
- [00:48:50.530]when we're doing financial efficiency.
- [00:48:53.350]Didn't you say that we don't want to look at
- [00:48:55.551]the non-cash (mumbling)?
- [00:48:58.607]You can add the non-cash interest expense.
- [00:49:00.623]Anything that says interest expense yeah.
- [00:49:01.690]Because again, I'm operating off a little
- [00:49:04.343]different number than what you've got here.
- [00:49:05.809]I have all different samples of these and I'm I think
- [00:49:10.110]you've got the one that's got a few red flags in it.
- [00:49:19.120]Interest expense, add those together
- [00:49:23.390]then divided by the total revenue.
- [00:49:27.260]What interest expense is being used
- [00:49:29.760]up by that total revenue?
- [00:49:33.340]What did you come up with?
- [00:49:35.829](woman mumbling)
- [00:49:36.662]4%?
- [00:49:38.713]Okay did anybody else come up with that number, 4%?
- [00:49:42.140]I will tell you this that in the 1980s
- [00:49:44.510]when farmers were starting to go under,
- [00:49:46.620]they were spending as much as 25% interest rates
- [00:49:51.220]or 25% of their revenue went to paying off interest.
- [00:49:56.280]Now any of us who've been around in the 80s
- [00:49:59.480]and I don't want to insult anybody in the room here
- [00:50:01.430]but if you were around in the 80s do you remember
- [00:50:03.270]the high interest rates?
- [00:50:05.585](woman mumbling)
- [00:50:10.150]And that was a time period you could put your money in CDs
- [00:50:15.880]and actually get a return above 1% or 2%.
- [00:50:20.740]Plus they'd give you a gift.
- [00:50:22.811](audience laughs)
- [00:50:24.170]Did everybody hear?
- [00:50:25.003]Plus the bank gave you a gift.
- [00:50:28.560]Who remembers that time period?
- [00:50:30.060]Where you would walk into the bank
- [00:50:31.340]and then would be all these pots and pans
- [00:50:33.230]and just you know glassware, all kinds of stuff.
- [00:50:36.472](woman mumbling)
- [00:50:37.511]It's like you can furnish a house
- [00:50:39.640]based on the bank giveaway.
- [00:50:41.410]I actually took advantage of some.
- [00:50:43.510]Oh my we are dating ourselves here girl, oh yeah.
- [00:50:46.444](woman mumbling)
- [00:50:48.560]And fun, isn't that the truth.
- [00:50:50.600]Isn't that the truth?
- [00:50:51.670]Alright so we're at 4%.
- [00:50:53.800]So I would say that this operation is doing okay.
- [00:50:57.570]That we don't have unnecessary debt load
- [00:51:00.690]on this operation but what one problem do they have?
- [00:51:06.180]So interest rates are in line,
- [00:51:08.160]or I mean interest payment is in line, their--
- [00:51:12.099](woman mumbling)
- [00:51:12.932]Yeah, their operating expenses are high.
- [00:51:14.650]So you can say let's go have a talk and find out
- [00:51:17.700]what we could do to reduce that operating expense line
- [00:51:21.260]down just a little bit, to be the cost containers
- [00:51:24.230]because you are the resilient farmer in this room.
- [00:51:28.073]So those are the ratios the quick and the dirty that
- [00:51:32.420]you can perform on your own farm records when you get home,
- [00:51:37.115]put it in this page right here to give yourself the analysis
- [00:51:43.120]of am I in good shape or am I going to need some help?
- [00:51:54.260]Okay, give me a second here.
- [00:52:37.702]All right and now for the final part of this,
- [00:52:39.710]how this all fits together.
- [00:52:45.170]This is where we start running around
- [00:52:47.560]and showing you where numbers come from,
- [00:52:50.680]where they wind up in this operation.
- [00:52:54.320]Now what do we say the balance sheet is up here?
- [00:52:58.857]How do we describe the balance sheet?
- [00:53:01.443](woman mumbling)
- [00:53:03.370]The financial snapshot.
- [00:53:05.970]Yeah and you can look either at, what happened to my
- [00:53:09.710]presentation yeah this is in my presentation again.
- [00:53:11.630]This is back to my presentation it still the one that
- [00:53:14.720]doesn't match what you got here but what is going to do
- [00:53:17.920]is demonstrate how stuff is all connected.
- [00:53:21.330]Now this spreadsheet was put together by Dwayne Griffith.
- [00:53:24.970]He was with the University of Montana.
- [00:53:27.330]Has since retired and so we have taken over
- [00:53:30.290]the spreadsheet from him here and the reason why I like it
- [00:53:33.680]is because he is taking a very difficult concept
- [00:53:36.890]of where's all the stuff go and come from
- [00:53:39.700]and put it on a single spreadsheet.
- [00:53:41.740]Remember this morning I told you how computer
- [00:53:44.880]software and spreadsheets is my life?
- [00:53:46.440]Okay here's one of the reasons why.
- [00:53:49.620]In the upper left-hand corner you can look at your
- [00:53:51.770]own too as well is we show you the balance sheet
- [00:53:55.680]in the two columns beginning and ending.
- [00:53:59.228]Beginning and ending.
- [00:54:02.350]On an asset side, on the liability side.
- [00:54:05.140]This is our balance sheet.
- [00:54:07.590]Then right below it we show cash flow and I'm going
- [00:54:11.720]to use the word statement because this is historic now.
- [00:54:15.400]This means we've gone back in our records and we've said
- [00:54:18.770]where did I money come from and where is our money going to.
- [00:54:23.600]We start sorting off uses of that funding
- [00:54:27.560]and so on the inflow side we have and I'm just going to
- [00:54:33.090]let you use your records they're just
- [00:54:35.160]kind of read to your numbers.
- [00:54:37.239]We have the market and livestock income.
- [00:54:45.240]You know you got your income from the commodities
- [00:54:47.130]that you're selling from your farm operation.
- [00:54:49.920]Other inflows that you got is
- [00:54:51.360]your operating loan proceeds.
- [00:54:54.470]If you are involved with taking operating loans out.
- [00:54:58.631]You are bringing them into the operation that is part
- [00:55:01.830]of your cash flow and interesting story is one
- [00:55:05.490]of our gals from Iowa.
- [00:55:07.290]When she was working with us on this,
- [00:55:09.803]she was wondering where the money was coming from for their
- [00:55:13.660]retirement plan.
- [00:55:16.440]Guess where the money was coming from?
- [00:55:19.200]The loans, it was not coming from the operation
- [00:55:22.890]because the operation proved to be not profitable.
- [00:55:26.150]However the loans are becoming into the operation
- [00:55:29.619]and then cash flow here made it look like they
- [00:55:33.230]had plenty of money to put this into their retirement.
- [00:55:36.970]Well if your retirement is on five
- [00:55:39.640]and it's costing you six,
- [00:55:42.670]are you gaining weight or losing weight?
- [00:55:45.918]You kind of losing it here.
- [00:55:47.270]So so just those little tips is what we look at here
- [00:55:51.410]when we are saying where's your money
- [00:55:54.060]coming from and where is it going to?
- [00:55:56.600]All right so inflow.
- [00:55:57.760]So now we look at the outflows, outflows here.
- [00:56:01.300]Your cash expenses, the things
- [00:56:02.900]you're physically writing the checks out for.
- [00:56:05.560]The interest expenses are all spelled out here.
- [00:56:08.950]You got that there too.
- [00:56:10.480]Who said loan principal payment is one of the things
- [00:56:12.900]that we use for the net farm income?
- [00:56:15.060]All right right there is a line for
- [00:56:18.761]taking out loan principal payments.
- [00:56:19.770]It's cash, we're taking it a cash asset and swapping
- [00:56:23.620]it for a physical asset, land,
- [00:56:27.050]machinery, whatever you are repaying back there.
- [00:56:30.760]All right and here's a line that says
- [00:56:32.430]owner withdrawals, drawls.
- [00:56:35.920]I'm saying that wrong.
- [00:56:37.440]Owner withdrawals.
- [00:56:38.860]What is that?
- [00:56:41.924](woman mumbling)
- [00:56:43.060]That's your family living.
- [00:56:44.100]That's you paying yourself out of these operations.
- [00:56:47.590]You know there's a lot of women who work off farm
- [00:56:51.820]and they tell me, I know I don't do anything with the farm.
- [00:56:58.436]I just have the job and I come home and take care of you
- [00:57:02.090]know what has to be taken care of
- [00:57:03.430]but I don't contribute to the farm otherwise.
- [00:57:06.680]Holy cow woman, let's step back and take a look.
- [00:57:09.660]What is it that salary that you're bringing to that
- [00:57:12.590]operation, what health care benefits
- [00:57:15.270]are you bringing to this operation?
- [00:57:17.690]60, 70, 80 thousand dollars in some cases.
- [00:57:21.310]All right that 60, 70 $80,000 is this line right here
- [00:57:25.820]that we do not have to take out of the farm operation.
- [00:57:29.920]It gets to stay in the farm operation
- [00:57:31.970]because who's supplying family living?
- [00:57:35.230]She is.
- [00:57:36.880]She is a huge contributor to this farm operation
- [00:57:40.450]because of retained earnings stay with the farm now.
- [00:57:43.620]Is not taken out and family living.
- [00:57:45.640]In the 1980s when we were having farms go down
- [00:57:49.480]like flies sprayed and a milking parlor,
- [00:57:52.690]where we found the problem was the family living
- [00:57:58.140]was not accounted for on the balance sheets.
- [00:58:02.200]The money was simply disappearing.
- [00:58:04.290]There was this big chunk of money and they were
- [00:58:07.927]some of you recall in the 80s it was a pretty high flying
- [00:58:12.360]time and so we were spending a lot of on these farm
- [00:58:15.020]operations and when everything crashed down,
- [00:58:17.530]they didn't stop spending back then and so we had huge holes
- [00:58:22.600]in the balance sheet and this is right here where was.
- [00:58:26.970]The owner withdrawals, they were not
- [00:58:28.660]accounted for in the balance sheet.
- [00:58:31.150]So we've got that since corrected.
- [00:58:32.800]We now have a handle of that.
- [00:58:35.110]Alright so this is the cash flow
- [00:58:36.620]and notice how here's how the cash flow works.
- [00:58:38.580]Down here where it says do you see
- [00:58:40.845]where it says annual net cash flow can never be zero?
- [00:58:44.320]Why is that?
- [00:58:48.680]I'm assuming that if you're spending the money somebody
- [00:58:51.290]on the other end is wanting it and so where that negative
- [00:58:55.480]cash flow is going to go, it's going to go into additional
- [00:58:58.649]borrowing and that's going to show up
- [00:59:02.940]if you follow your eyes.
- [00:59:04.360]There's a line that says operating loan carry over.
- [00:59:09.260]That is where your negative cash flow is going
- [00:59:13.180]to go because you're going to borrow it.
- [00:59:14.960]You can't be spending money and people not getting it.
- [00:59:17.940]So if you're spending money you have a negative cash flow
- [00:59:20.430]is going to show up in additional debt side
- [00:59:23.810]of your balance sheet.
- [00:59:26.190]Alright here's where the annual cash flow
- [00:59:28.960]and I think yours is a positive 9000, is that right?
- [00:59:32.160]Yeah you got a positive $9,000.
- [00:59:34.650]Following the flowchart there where does
- [00:59:36.690]that $9,000 wind up on your flowchart?
- [00:59:44.460]Cash on hand ending, cash on hand ending.
- [00:59:47.960]You would have started I think yours is 1500?
- [00:59:52.010]Yeah 1500 and it grew to $9000,
- [00:59:57.080]and where we find that is here in the cash flow box.
- [01:00:02.820]Money in, money out.
- [01:00:05.370]In your case you had $9,000 left
- [01:00:07.350]over so you didn't have to take on additional debt.
- [01:00:10.410]That $9,000 wound up in your checking account
- [01:00:12.780]for cash on hand okay.
- [01:00:15.500]Now let's go over to the income statement
- [01:00:18.940]and we'll wind it up here and then take your questions.
- [01:00:22.180]All right what do we say the income statement is for?
- [01:00:25.880]What is the purpose of that document?
- [01:00:33.310]Am I profitable or am I losing money?
- [01:00:36.420]That's the purpose of the income statement.
- [01:00:38.780]It tells you are you making money or how much you're losing.
- [01:00:43.950]It goes both ways.
- [01:00:45.920]Alright so on the income statement here,
- [01:00:49.720]we have a net income figure that we come to the bottom
- [01:00:54.150]we take out our operating expense, our depreciation expense,
- [01:00:57.690]take out our financing expense
- [01:00:59.240]and subtract from revenue to those numbers
- [01:01:01.430]and we come up with net farm income and out of net farm
- [01:01:04.880]income what do we say we do with those, what are the four
- [01:01:07.500]things with net farm income that we spend that money for?
- [01:01:12.278]Income taxes, you went for the most difficult.
- [01:01:17.494]Okay income taxes.
- [01:01:20.170]Family living, principal payments,
- [01:01:25.020]Investments or debt draw down,
- [01:01:26.580]yeah those combinations are going on there.
- [01:01:29.654]Okay, very good.
- [01:01:30.850]So our income statement on our paper
- [01:01:33.756]there says you made what $27,000?
- [01:01:37.334]Is that correct on net farm income?
- [01:01:41.000]All right so we have a positive net farm income,
- [01:01:44.230]you're making money.
- [01:01:45.360]$27,000 and what's one of the expenses
- [01:01:49.840]that we take out of the $27,000?
- [01:01:54.890]No not so much property tax.
- [01:01:56.770]Take a look at what we took out for family living.
- [01:02:04.338]Which about 30,000 for that family living
- [01:02:07.700]and your net farm income was 27000.
- [01:02:11.960]Where do we make up that difference?
- [01:02:17.370]What happened to your balance sheet from
- [01:02:21.040]the 1st to the 2nd balance sheet?
- [01:02:24.170]Did you gain weight or did you lose weight?
- [01:02:27.420]You lost weight.
- [01:02:28.500]You lost what about $2,700?
- [01:02:32.970]Yeah it's the difference between what your net farm
- [01:02:36.850]income was, what family living drew out of it.
- [01:02:40.880]It was 30,000 you actually over exceeded it.
- [01:02:43.340]That money has got to come from someplace.
- [01:02:45.932]It comes off the balance sheet and your net worth actually
- [01:02:49.760]went down by the difference and what family
- [01:02:52.310]living took out of the farm operation.
- [01:02:56.430]So how these documents all tie together.
- [01:02:59.770]Cash flow, the in and the out.
- [01:03:02.590]Where did the money come from, who did it go to identifies
- [01:03:07.436]did you invest with it or did you put it into your savings?
- [01:03:12.854]It is just a means of keeping track of where money
- [01:03:16.210]is where is in the 80s, we lost track of
- [01:03:18.920]family living with some of these operations.
- [01:03:21.130]Not anymore.
- [01:03:22.000]It's reconciled now in the statement of
- [01:03:24.730]owner equity in the lower right-hand corner.
- [01:03:28.280]This is where if you try to hide that you're taking family
- [01:03:30.870]living and ladies if you got
- [01:03:32.270]that extra credit card out there
- [01:03:34.808]you haven't confessed it yet, this is where we uncap you.
- [01:03:39.060]This is where we find you,
- [01:03:41.050]and then we go have a quiet conversation off in the corner
- [01:03:44.952]and like one of our gals who had 12 credit cards.
- [01:03:50.510]She was a shopper and a hoarder and well we worked with her.
- [01:03:57.010]We work with anybody.
- [01:03:58.080]We work with all of them.
- [01:03:59.740]So yeah we know that that's out there.
- [01:04:01.350]Don't try to hide it because it's in that document,
- [01:04:05.280]the statement of owner equity that we uncap
- [01:04:08.110]the uncollected or I'm reported family
- [01:04:11.040]withdrawals on these operations.
- [01:04:13.770]So that is how these documents tie together.
- [01:04:16.700]Profitability is your income statement.
- [01:04:18.860]Did you make money?
- [01:04:20.290]Balance sheet, that family snapshot.
- [01:04:23.670]Did you change family members?
- [01:04:27.890]How did the hairstyles change, fashion changes.
- [01:04:32.980]We see that when we you stack those balance sheets up
- [01:04:35.770]over the years so I was suggesting you that if you
- [01:04:38.170]have a stack of balance sheets that you
- [01:04:41.485]look at them and one of your criteria is look at that
- [01:04:43.830]balance sheet when it was prepared.
- [01:04:46.450]Ideally and by the rules it should be prepared
- [01:04:50.550]on the same date one year apart.
- [01:04:53.750]That gives you the accurate picture.
- [01:04:57.980]Not when the lender says you need it,
- [01:05:00.110]not when the banker says here let
- [01:05:02.140]me put one together for you.
- [01:05:03.870]I don't want you to do that.
- [01:05:04.960]Make your own balance sheets.
- [01:05:07.730]So look at those dates on those balance sheets, find
- [01:05:10.620]the ones with the dates match up and look at your trend.
- [01:05:14.460]Did you gain weight?
- [01:05:15.420]I hope so.
- [01:05:16.260]I hope you're all fat and happy when you get done
- [01:05:19.450]with that analysis or did you lose weight?
- [01:05:21.470]Did your net worth go down over a period of town time?
- [01:05:25.100]If you're trending down, you know that it's time
- [01:05:29.007]to start doing something especially if you're near
- [01:05:30.768]the retirement age where you don't have
- [01:05:33.181]a lot of time to recoup the stuff.
- [01:05:34.640]That might be a good transition period
- [01:05:36.940]to start moving stuff to the next generation
- [01:05:39.530]if you're in that downward trend and then the cash flow.
- [01:05:46.300]In and out, where did it go, income statement,
- [01:05:51.487]profitability, balance sheet, the financial snapshot
- [01:05:55.240]and statement of owner equity,
- [01:05:58.240]how it all reconciles out in the end.
- [01:06:02.040]So let me just throw it open for questions here, comments.
- [01:06:07.210]Yes ma'am?
- [01:06:08.760]And I'm going to have you talk in
- [01:06:10.900]this really cool thing that I was handed.
- [01:06:13.940]I think it, does it work?
- [01:06:16.537]Talk into that.
- [01:06:18.000]I'm actually a lender but we have conversations with
- [01:06:24.190]our producers about how to handle long-term assets such
- [01:06:29.010]as real estate on the balance sheet.
- [01:06:31.330]We typically put them in a purchase price
- [01:06:33.980]so we don't touch them.
- [01:06:36.140]However with increasing markets over the last several years,
- [01:06:40.410]we've been asked to increase those.
- [01:06:44.350]I guess what is your recommendation on handling the
- [01:06:46.895]long-term assets such as real estate on the balance sheet?
- [01:06:50.240]Where to put it in and when
- [01:06:51.700]to increase it and when not increase it?
- [01:06:53.700]Okay that is an excellent question
- [01:06:55.400]and if everyone heard it,
- [01:06:56.720]she's a lender who is looking at the balance sheets.
- [01:07:00.180]Now we all know that land values increased here from that
- [01:07:03.980]2009 up to 2013
- [01:07:08.480]and maybe it's on its way down.
- [01:07:11.250]How do you put that into your balance sheet?
- [01:07:13.680]Okay, I had this conversation with the lender
- [01:07:17.337]and this particular lender said on the balance sheet
- [01:07:22.610]I want what you paid for that land.
- [01:07:25.820]Not a penny more.
- [01:07:26.820]I don't care if it went up three
- [01:07:28.440]times the value on that balance sheet.
- [01:07:31.050]I only want you to show me what you paid for.
- [01:07:36.116]Is that kind of your line of thinking?
- [01:07:38.393](woman mumbling)
- [01:07:39.476]It's typically what that banker does and so, and this was a
- [01:07:43.230]fellow who was talking about this and I said okay,
- [01:07:50.610]you know it's 40 years later now
- [01:07:53.560]and on your balance sheet you
- [01:07:56.110]still want them to show what it is they paid for it,
- [01:07:59.070]the cost balance sheet.
- [01:08:02.169]Do you show your wife your picture when you were dating
- [01:08:06.320]her back and college to evaluate his current condition?
- [01:08:10.877](audience laughs)
- [01:08:12.860]You don't.
- [01:08:13.960]There is a current picture someplace that truly tells
- [01:08:17.950]you what's going on and how do you the
- [01:08:20.530]University of Illinois handled that circumstance
- [01:08:23.400]was they created a balance sheet with two columns,
- [01:08:26.870]not the beginning and the end but cost versus market value
- [01:08:32.450]and all the ratios that I talked about here
- [01:08:36.530]in this class are based on market value.
- [01:08:41.030]Where's my Quick Book people?
- [01:08:43.920]Okay QuickBooks when you hit the button,
- [01:08:46.610]what kind of balance sheet doesn't give you?
- [01:08:49.940]Do you know?
- [01:08:50.773]A pretty one.
- [01:08:52.641]A pretty one.
- [01:08:53.521](audience laughs)
- [01:08:54.880]One that you did not have to do much with.
- [01:08:57.921]Yeah, but actually for you the ratios are not going to be
- [01:09:00.480]as meaningful because you're on
- [01:09:02.350]a cost basis, her, what she says.
- [01:09:06.150]What you paid for it and what you depreciated
- [01:09:08.560]out on it.
- [01:09:10.110]Right so if you take your QuickBooks records
- [01:09:14.250]and try to do the analysis,
- [01:09:15.810]the numbers are going to be slightly askew
- [01:09:17.670]because you're cost not market.
- [01:09:20.030]You can with journal entries correct that to market values
- [01:09:25.520]and that's why we created the cost column to take care of
- [01:09:29.950]the lender as well as the market value to give you the true
- [01:09:34.120]picture because when it comes time if we have to bankrupt
- [01:09:37.440]the farm out and sell the operation, it's not going to be
- [01:09:41.390]based on what they pay for it because if you overpaid for
- [01:09:44.090]it you know tough to be you and that time
- [01:09:46.627]but it wants to know what the market value is.
- [01:09:50.184]That's where your cash is coming out of.
- [01:09:52.504]That's where the buyer and seller they're going to
- [01:09:53.600]exchange cash and it's going to be on the market value.
- [01:09:57.200]So for the lender who I think is really on their toes,
- [01:10:01.330]I like to see the two column balance sheet.
- [01:10:04.470]There's resources online.
- [01:10:06.140]Talk to me I'll get you the link and you can start using
- [01:10:09.560]that and for them, they can then do their lending on
- [01:10:14.880]their cost column and have a handle on the market value
- [01:10:20.260]in the event you have to bankrupt them out.
- [01:10:22.030]You know so it gives them the best of both worlds.
- [01:10:24.480]Also on the balance sheet, the method that they're
- [01:10:27.490]using it gives you that historical record of what you spent
- [01:10:32.360]on land and buildings and so it has a historical value.
- [01:10:36.700]It's a good way to keep track of it there as well.
- [01:10:39.240]So it's not right nor wrong.
- [01:10:42.390]I'm showing accountant would have another opinion on it
- [01:10:45.750]but from my standpoint, I'm looking for the current picture
- [01:10:51.980]and so that means I'm going to be using market value.
- [01:10:55.150]Find that balance sheet that gives you the cost
- [01:10:58.099]column and you can keep the lender happy as well.
- [01:11:01.176]But I know what happened because of the 80s
- [01:11:04.040]and hears without the lender scared.
- [01:11:05.500]In the 80s, we leveraged and leveraged and leveraged
- [01:11:09.160]every time the price went up the land values went up,
- [01:11:12.460]the farmers went out and they borrowed heavier and heavier
- [01:11:15.420]and heavier against that and then
- [01:11:18.120]what happened to land values?
- [01:11:20.350]What happened to our cash flows?
- [01:11:23.370]Dried up and there we were sitting with that balance sheet
- [01:11:26.700]that said I spent $2,000 for the acre of ground.
- [01:11:29.740]It is now worth $1,000.
- [01:11:32.620]So bankers I know where that, I don't know if it's
- [01:11:35.730]skittishness or where that fear of reporting just what
- [01:11:39.620]you spent on it but look for the actual today picture
- [01:11:44.530]value in your records and you may have to accommodate
- [01:11:46.930]the lender that says hey
- [01:11:48.450]I want to have cost and that's what we use.
- [01:11:51.445]How do you suggest on this
- [01:11:52.440]process when you have multiple into these?
- [01:11:55.540]Multiple entities, so give me an example of multiple
- [01:11:57.380]entities in your case.
- [01:11:58.510]A corporation versus personal
- [01:12:01.210](woman mumbling).
- [01:12:02.087]Oh okay personal?
- [01:12:04.380]Business is here but then we also have personal
- [01:12:07.150]and the way that they Interplay may not always this
- [01:12:11.470]scenario may not always give an accurate picture.
- [01:12:14.830]Yes, because one is bleeding off the other?
- [01:12:17.450]I mean I'm just using some term here.
- [01:12:21.952](woman mumbling)
- [01:12:28.420]Catch.
- [01:12:30.528](audience laughs)
- [01:12:31.361]He told me that's what it was for.
- [01:12:33.672]I got one minute here so.
- [01:12:36.074]Just how you work with these
- [01:12:37.934]if you have different entities?
- [01:12:38.960]The answer is I don't know because I know your
- [01:12:41.310]entity is going to have this cash flow
- [01:12:44.240]but the interaction between them and the one minute
- [01:12:46.820]I've got, I'm just going to tell you
- [01:12:48.860]let's go to the accountant on that.
- [01:12:50.300]If we've got an accountant in the room,
- [01:12:51.980]is her question okay.
- [01:12:53.889](women laughs)
- [01:12:54.890]But good point, you're on your toes.
- [01:12:57.020]You do want to be careful when you are
- [01:13:00.250]record-keeping for multiple entities as I am.
- [01:13:03.310]You know how you keep that stuff separate.
- [01:13:04.860]Somebody had their hand up back here?
- [01:13:07.710]There's a lady behind you that has a question.
- [01:13:14.060]Can you catch?
- [01:13:15.990]Okay, heads up.
- [01:13:19.130]Okay, we're going to hurt somebody here with that.
- [01:13:22.030]Just from a lender's point of view,
- [01:13:23.670]I just want to make one quick comment aside from the fact
- [01:13:26.550]that I love that sheet up there,
- [01:13:28.500]but please everybody remember because
- [01:13:31.620]we've seen some nasty surprises the last couple of years.
- [01:13:34.610]This is a snapshot and if you have grain inventory up
- [01:13:37.780]there at the end of the year and your husband held onto
- [01:13:41.720]it all through this summer,
- [01:13:43.475]you know what happened to that grain inventory.
- [01:13:46.080]So please go to the marketing stuff as well as this
- [01:13:50.056]because if you've got your grain up there at 350,
- [01:13:53.980]it's not valued at 350 until you sell it
- [01:13:56.840]and bring the money to the bank.
- [01:13:58.470]Exactly right and that is the cash flow issue
- [01:14:01.380]versus the balance sheet.
- [01:14:02.530]Do not use the balance sheet for your cash flow.
- [01:14:06.560]You can't do that because all's what is doing is giving
- [01:14:09.040]you that, I call it the the family portraits
- [01:14:11.520]around the Christmas Tree.
- [01:14:12.960]You take it this Christmas, you take it next Christmas,
- [01:14:15.730]you take it next Christmas but in the meantime all
- [01:14:18.260]that cash flow is going on, prices up and down.
- [01:14:21.430]So yeah.
- [01:14:22.500]Let's give Ruth a hand.
- [01:14:23.450]Thank you so much.
- [01:14:24.551](applause)
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