Two Hands on the Wheel

Photo by Bethany Johnston

Know Your Numbers, Know Your Options

Financial Literacy for Low Revenue Times

Facilitator Manual

Topics Index

Program Introduction....................................................................................................................3

Session 1 – Basics of Balance Sheet Construction and Analysis.....................................................6

Session 2 – Cash Flow and Keeping Farm/Ranch Financial Records.............................................11

Session 3 – Income Statements – Measuring Profitability...........................................................14

Session 4 – Evaluating and Adjusting Cash Leases.......................................................................16

Sources........................................................................................................................................ 19

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Program Introduction

“Low revenue and tight cash flow are a part of any farm and ranch business. It brings stress ranging from unhappiness to family breakups and even suicides. From hard times there are renewals, new hopes, and a sense of accomplishment. You are there to help professionals make connections with families to get them through these times. You are there to help them get “Two Hands on the Wheel!” – Ruth Hambleton, Founder of Annie’s Project—Education for Farm Women

This manual is written by Ruth Hambleton, Annie’s Project Education for Farm Women, http://www.anniesproject.org/board-of-directors/. It is made up of the course syllabus in bold print and has facilitator instructions added in italics.

Program Recommendations

It is recommended that this program be delivered using the methodology of Annie’s Project

Small, interactive groups Hands-on activities Research-based information If participants have their own records and leasing contracts, they are encouraged to use

them in this course.

Program Assumptions and Aids for Participants

Accessible by e-mail Have internet connection at home Have computer skills sufficient to navigate a spreadsheet or input financial data in

recordkeeping software. Bringing devices such as personal laptops and tablets is preferred.

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Program Assumptions and Aids for Facilitator:

Have internet connection at the meeting location. When evaluating a location for the course, make sure that

o Wi-Fi is availableo The websites that you will visit are accessible, not blocked

Test all sites and resources before the day of class.o There is tech support to deal with any issues

Registration should reveal how many intend to bring their own laptops/tablets. Women should be encouraged to bring their own devices.

Jump drive preloaded with handouts and spreadsheets for each participant. (All course materials are available for download in the Know Your Numbers folder on the facilitator page of the website.)

Laser pen for each participant is useful, but optional

Program Objectives

This four-part, 12-hour program is designed to deliver basic farm/ranch financial literacy to families preparing for tight cash flows. Upon completion of this program, farm and ranch women will better understand how financial records can be used to make rational decisions about declining incomes, tight cash flows and high cash rents. Financial education will empower farm/ranch women to effectively communicate with their families, business partners and lenders in general.

Classroom Set Up

Tables arranged to allow for discussion, small clusters of tables or ‘U’ shape arrangement.

Tables arranged to allow for laptops (bring lots of extension cords for plugging in computers) and room for notebooks.

Presentation laptop, internet connection, projectoro Confirm several days before the course begins that the internet connection

will allow you to access each of the websites and videos in this course. o By testing each one individually ahead of time, you will have time to work

with the ITs at your location to solve any glitches in reaching these sites.

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Pre-Course Tasks

Upon registration participants should receive a welcome e-mail with two links. The e-mail should instruct each participant to click on the links to:

o Provide the pre-class survey that will measure their expectations and level of knowledge and comfort about the upcoming subject matter.

o Watch an overview of financial analysis that will be presented multiple time throughout this course; https://www.youtube.com/watch?v=DtcywIVhZnI&feature=youtu.be

Binder Contents

Several of the handouts will be used in more than one session. The recommended format for filling the binder is listed below. Separate each segment with dividers.

1. Class Syllabus 2. PowerPoint presentation (printed in handout format – 3 slides per page)3. Handouts

Agribusiness Balance Sheet ...................................AGRIBUSINESS BALANCE SHEET.XLS Balance Sheet Exercise ..........................................BALANCE SHEET EXERCISE.DOCX Balance Sheet Exercise Key....................................EXERCISE KEY.PDF Cash Flow Budget and Statement............................(CASH FLOW BUDGET AND

STATEMENT.PDF) Farm Finance Scorecard ........................................FARM FINANCE SCORECARD.PDF Financial Vocabulary..............................................FINANCIAL VOCABULARY.PDF How the Pieces Fit Together...................................HOW PIECES FIT TOGETHER.PDF Income Statement Items........................................INCOME STATEMENT ITEMS.PDF Keyboard Shortcuts................................................KEYBOARD SHORTCUTS.PDF Key Ratio Summary................................................KEY RATIO SUMMARY.PDF Local Cash Lease Forms* Local Current Crop Budgets* Personal Net Worth..................................................PERSONAL NET WORTH.PDF Software Comparison...............................................QUICKBOOKS VS QUICKEN.PDF

* Local cash lease forms and current crop budgets are not provided, as they vary from state to state. Please use local resources.

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Session 1 Basics of Balance Sheet Construction and Analysis (course syllabus page 4)

Handouts/Resources

Agribusiness Balance Sheet............................................AGRIBUSINESS BALANCE SHEET.XLS

Balance Sheet Exercise................................................BALANCE SHEET EXERCISE.DOCX Balance Sheet Exercise Key..........................................EXERCISE KEY.PDF Farm Finance Scorecard...............................................FARM FINANCE SCORECARD.PDF Financial Vocabulary....................................................FINANCIAL VOCABULARY.PDF Personal Net Worth.....................................................PERSONAL NET WORTH.PDF Key Ratio Summary.....................................................KEY RATIO SUMMARY.PDF

BASICS OF BALANCE SHEET CONSTRUCTION AND ANALYSIS (3 hours)

Introductions/Expectations (Have power point presentation opened and on the first slide.)

Welcome the group and introduce yourself and others in the room that helped organize the program or will present later in the program.

Stress that participants should make every effort to attend all meetings and complete given assignments.

Meetings start on time and end on time. Emphasize the confidentiality that participants can expect; whenever possible,

participants will be dealing with their own records. Housekeeping announcements. Review content of notebook in front of them, handouts, printed power point, jump drive,

laser pen. Participants introduce themselves with ice breaker activity.

Ice Breaker

Advance to slide 2 of the PowerPoint. Allow ten minutes for an activity to let the participants have a little fun and introduce themselves. Women will share their favorite smell from the farm/ranch and what they expect to get out of the program. Take notes and watch for body language around the room revealing that this might be a stressful time for them.

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Introduction to Farm Financial Analysis

Advance to slide 3: play You Tube video https://www.youtube.com/watch?v=DtcywIVhZnI&feature=youtu.be)

Advance to slide 4: ask for comments from the group, particularly looking for those who might feel intimidated by the topic.

Objectives slide 6

The objective of this program is to work on participant financial documents starting with the balance sheet so they understand what it represents and know its uses.

Construct a basic balance sheet and interpret selected ratioso Working Capitalo Debt to Asset Ratio and/or Equity to Asset Ratioo Net Worth

Introduce modern techniques for keeping farm/ranch financial records

Introduction to a Balance Sheet, Basic Components

At slide 8, review the balance sheet section of the financial vocabulary handout and broad categories of the benchmark handout. Where appropriate there are speaker notes in the notes pane of the PPT slides.

Review concepts of Debits and Credits https://www.accountingtools.com/articles/2017/5/17/debits-and-credits?rq=debits%20and%20credits

At slide 11, participants should have the Agribusiness Balance Sheet handout in front of them. The laser pen comes in handy for this part of the program, giving the participant the ability to pinpoint specific questions they may have on the presenter’s screen.

At slide 21, switch visuals to the Excel spreadsheet to demonstrate how to use it to construct a balance sheet and under what circumstances they should use a spreadsheet or use their financial recordkeeping software to generate a balance sheet.

Invite those who brought computers to open them and open Agribusiness Balance Sheet.xlsx file. (Organizers may provide laptops.)

Some participants may have a solid balance sheet and those who do should have it out for this demonstration. For those who do not have a balance sheet, this is their chance to learn to use a spreadsheet to develop or improve their balance sheet.

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Exercise: Building a Sample Balance Sheet Have participants open the spreadsheet AGRIBUSINESS BALANCE SHEET.XLSX. Help participants enter the information from the handout BALANCE SHEET EXERCISE.

o Use the very simple exercise provided. Make note that this exercise has a business balance sheet and a personal balance sheet that gets combined for them to create the consolidated balance sheet.

o As participants finish their exercise they can take a break.

Interpreting a Balance Sheet

This is a good time to bring in a trusted and articulate lender to lead a discussion about a lender’s perspective. Share the exercise answer sheet and have participants compare their work with the key. Including the presenter in your part of the program (building a balance sheet) and then having him/her do the interpretation part is very beneficial.

Have Balance Sheet Exercise Key, the Key Ratio Summary handout and the Farm Finance Scorecard in front of participants.

Learning Three Key Ratios Use the BALANCE SHEET EXERCISE ANSWER handout or use their own.

Working Capital Demonstrate the simple math involved; formulas are found on the SCORECARD.

Debt to Asset Ratio Demonstrate the simple math involved; formulas are found on the SCORECARD.

Net Worth Demonstrate where to find this number on the Agribusiness Balance Sheet and how it is calculated.

Participants are pleased to learn that it is not hard to come up with some key benchmarks; it’s just a matter of knowing where to get the numbers.

What the Ratios Tell You – Risk Management Techniques

This part of the program becomes discussion based relying on the benchmark handout and scorecard to bring perspective to the financial health picture that is emerging at this time. This is where an experienced educator or lender should lead the discussion. Watch the room for reaction.

As you approach the end of this program, ratios will lead to decisions about working with negative working capital, declining balance sheets, and tight cash flows. It will be hard for some

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to continue working with numbers. Be very encouraging about continuing to work through these tight cash flow times. Lenders are very respectful of farmers and ranchers who discuss finances before getting in too deep. Lenders have tools to help such as additional lines of credit or restructuring debt saving cash in the short run, but adding interest expense over the long run. Farmers and ranchers will be empowered by the numbers to make good decisions. It may entail a realignment of goals and a different plan than originally expected, but that is the nature of this business. Get two hands on the wheel and get through it with the help of family, lenders, and a community that loves its farmers and ranchers!

What the Ratios Tell You

Trend directions Lines of credit Restructuring debt Communicating goals and plans Bankruptcy

Bankruptcy – A Financial Tool slide 24

Should any of their preliminary numbers give them a cause for concern, and they need information about bankruptcy, make them aware that this is an area for professionals to guide them through. Advise them to do their due diligence and read up on what it means to file for bankruptcy before anyone else speaks to them about it.

Quicken slide 25

For your own review and to share with the participants, you will find an excellent resource by Dr. Damona Doye of Oklahoma State University. Dr. Doye developed these materials so one can buy the inexpensive Quicken software and adapt it for agriculture. Visit http://www.agecon.okstate.edu/quicken/index.asp for links to “Quicken for Farm Financial Records” which includes free access to the manual, sample files, videos and instructions.

Quicken vs QuickBooks slide 28

Comparison of the two programs Quicken resources developed by Dr. Damona Doye

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QuickBooks Financial Recordkeeping

Balance Sheet Report – Demonstration of financial software package and selected features relevant to the topic. The presenter for this topic should be experienced with QuickBooks. The presenter may use their own data files or use the provided data files which can be used as a case study to demonstrate the use of QuickBooks software accounting.

Complete feedback cards “What I Learned – What I Need to Learn” Distribute feedback cards for completion and collect.

Assignment

Give participants the assignment to find their most recent balance sheet and examine it for the three items discussed in class.

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Session 2 Cash Flow – Keeping Farm/Ranch Financial Records(course syllabus page 7)

Pre-Class

Review the information from the feedback cards from the first class and review the results from the online pre-class survey. Make any adjustments as needed.

Class Handouts

Cash Flow Budget and Statement................................CASH FLOW BUDGET AND STATEMENT.PDF

Financial Vocabulary....................................................FINANCIAL VOCABULARY.PDF

How the Pieces Fit Together........................................HOW PIECES FIT TOGETHER.PDF

Key Ratio Summary.....................................................KEY RATIO SUMMARY.PDF Understanding Cash Flow Analysis: online at

https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html

CASH FLOW – KEEPING FARM AND FINANCIAL RECORDS (3 hours)

PowerPoint presentation for session 2 begins with slide 31

This topic is the meat and potatoes of what women do to keep farm/ranch financial records. Knowing how this function fits into the big picture helps the record keeper grow in confidence and provides incentive to do a good job with this important function of business and household financial management.

Start the second class with a replay of the You Tube video – slide 31.o https://www.youtube.com/watch?v=DtcywIVhZnI&feature=youtu.be

Review Impacts from First Class slide 32

Ask women:

if the video is making more sense if they are more comfortable with the terminology to share what they did with the information from the first meeting if everyone found/finished/redid their own balance sheet

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if there was anything difficult about doing this

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Objectives slide 33

Understand management of cash flow Modern techniques for keeping farm/ranch financial records Why to keep track of cash flow

Introduction to Cash Flow Basics (course syllabus page7) slide 34

Review the Cash Flow section of the financial vocabulary handout Cash flow warm-up

o “What needs do I have for these records?” Cash flow basics

As a cash flow topic warm-up, have the participants share the environment in which they keep records. Ideally, we would like them to be in an office environment, totally organized and devoting at least 15 minutes a day, every day to recording transactions, watching/correcting for errors and preparing reports from financial software. The reality is more likely that many recordkeeping functions are done only a few times a year using the paper and pencil method, bank records, spreadsheets, and maybe an old software program that no one has looked at after a miserable attempt to use it. Keeping track of scraps of paper, or having to hunt up receipts or other documents and then getting everything to a filing system can be a source of family frustration. Women have the greatest experiences to share concerning how they managed the information monster. Have the audience think through the question “What needs do I have for these records?” There is no perfect system. The best one is the one that fits the needs of the woman performing the tasks. Hint: demo scanning if equipment is available.

Tips for Recordkeeping slide 35

o Categories Keep them simple Tags (Quicken) or Asset Class (QuickBooks)

o Reports Run reports to catch errors Share reports with key decision makers

o Work Habits Work on records every day (even for a few minutes) Let the software do the work

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Cash Flow Budget vs Statement of Cash Flow slides 36 and 37Have the participants look at their cash flow handout to get the idea of how money is tracked through the cash flow process and then how that information becomes part of the historical statement of cash flow.

o Open the Excel spreadsheet, HOW PIECES FIT TOGETHER.xlsx. There is also a PDF handout with the same name that participants should have in front of them. Laser pens will help women ask their questions on the presenter’s screen. This spreadsheet will show the relationship of cash flow statements to the balance sheet.

o Use the Ratio Calculations and Interpretations slide 39 to wrap it all up.

QuickBooks Financial Recordkeeping

Demonstration of financial software package and selected features Demonstrate financial software packages and selected features below that will be helpful for effective farm/ranch recordkeeping. The presenter may use their own data files or use the provided data files which can be used as a case study to demonstrate the use of QuickBooks software accounting.

Sourcing income Tracking/classifying expenses Timing income and expenses for farm/ranch and family living

Complete feedback cards “What I Learned – What I Need to Learn” Distribute feedback cards for completion and collect.

Assignment

Review recordkeeping for your farm/ranch and think about what you can do to improve what you are doing.

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Session 3 Income Statements – Measuring Profitability (course syllabus page 9)

Pre-Class

Review the information from the feedback cards from the first and second classes. Make any adjustments as needed.

Class Handouts

Farm Finance Scorecard...............................................FARM FINANCE SCORECARD.PDF How the Pieces Fit Together........................................HOW PIECES FIT TOGETHER.PDF Income Statement Items..............................................INCOME STATEMENT ITEMS.PDF Key Ratio Summary.....................................................KEY RATIO SUMMARY.PDF

INCOME STATEMENTS – MEASURING PROFITABILITY (3 hours)

PowerPoint presentation for session 3 begins with slide 42 You Tube video https://www.youtube.com/watch?v=DtcywIVhZnI&feature=youtu.be

Replay the video – repetition is good.

Review Impacts from Second Class slide 43

Share your conclusions about your recordkeeping system. Open the class by letting women share what they concluded about their recordkeeping system. Some questions to start the conversation:

o Is the video making more sense?o Any thoughts about your recordkeeping system?o Any changes you might be considering with keeping farm/ranch records? (This

can include production records like cow/calf, bull performance, etc.)o Was there anything difficult about doing this?

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Objectives slide 44

Introduce components of an income statement Understand difference between cash and accrual accounting Understand profitability Calculate financial efficiencies from the income statement Demonstrate how an income statement is the bridge between balance sheets

Income Statements slides 45-52

Review the income statement section of the FINANCIAL VOCABULARY handout. Structure of income statement (NOT income tax) Measuring profitability – Use of Net Farm Income Ratios from the Income Statement – Financial Efficiencies Income statement – the bridge between two balance sheets Accrual counting vs. cash Statement of owner equity How the pieces fit together

QuickBooks Financial Recordkeeping Software slide 53

Demonstration of QuickBooks software Demonstration of financial software package and selected features Demonstrate

financial software packages and selected features that will be helpful for effective farm/ranch recordkeeping.

Complete feedback cards “What I Learned – What I Need to Learn” Distribute feedback cards for completion and collect.

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Session 4 Evaluating and Adjusting Cash Leases (2 Hours plus 1 Hour Wrap Up)(course syllabus page 11)

Pre-Class

E-mail a local version of the following sample link for review before class time:o http://farmdocdaily.illinois.edu/2017/11/determining-average-cash-rent-

productivity-index.html Review the information from the feedback cards from the first, second and third classes.

Make any adjustments as needed.

Class Handouts

Local Cash Lease Forms Local Current Crop Budgets Use information from your area that is current.

EVALUATING AND ADJUSTING CASH LEASES PowerPoint presentation for session 4 begins with slide 55 Leasing practices are state specific. Facilitators should make arrangements with

presenters knowledgeable about leasing law, practices and recent trends for your state.

Objectives slide 56

Review current leases Evaluate for low income times Develop appropriate remedies if needed

Update for Current Year Farmland Leasing slide 57-60

Overview of current:o agricultural economics and commodity priceso leasing practices

Review of current:o cost of production including expense of cash rento lease forms

Evaluating current cash rent for affordability vs market supply and demand for land

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Risk Management Strategies slide 61

Insurance If working capital is very low or negative, there is no room for a bad income year. Participants will need to show a plan that puts a floor under their revenue. Insurance can be a part of that plan. The older generation needs to protect assets, younger folks need to take risk.

Containing costs Make every effort to lower input expenses without hurting input. Every expense is deliberate and purposeful.

Right-sizing operations Investments to get a job done are in line with incomes. When investments are too large for the income, profitability is hurt and it becomes necessary to sell assets.

Marketing Selling commodities/products is the heart of revenue generation. Hold a discussion about how this function is handled. Women are excellent at looking at breakeven prices and selling at profitable opportunities.

Non-farm/ranch income It is a fact that 86% of all farm and ranch operation in the U.S. have off farm income. Women will often say they are not involved in the farm, but rather they work for the insurance and household money. They are huge contributors to growing the wealth on these farm and ranch operations. What is not withdrawn from the farm revenues as family living stays on the balance sheet as retained earnings leaving cash to reduce debt.

Diversification The idea of putting your eggs in different baskets is an old and trusted way to reduce risk. What kinds of diverse operations or ideas are represented in the room?

Tax Planning Managing low margin times starts in October with looking at tax implications. Make your appointment with your professional earlier than usual.

Reaching out to neighbors in a way that lets them open up Give this part in the program plenty of time to cool down, and plan some next steps. You’ve made a group of women feel like they can do something good.

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Wrap Up slide 62

Discussion Have a wrap-up discussion on the topics in the list above. Take the end-of-class survey Complete feedback cards “What I Learned – What I Need to Learn” Distribute

feedback cards for completion and collect. Distribute certificates Write a less than 200-word essay about your learning experience. Provide instructions

and e-mail address if this will be done outside of class. o Set a date to do a follow-up e-mail with participants who have not submitted

their essay.

Be kind, supportive, and assuring throughout.

OPTIONAL: Distribute a list of resources that a family can use to apply for food assistance, health assistance, legal assistance, and counseling.

FOLLOW-UP ACTIVITIES: Have the participants identify a need for additional programs like an in-depth look into depreciation.

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Resources:

Bragg, Steven. “Credits and Debits,” https://www.accountingtools.com/articles/2017/5/17/debits-and-credits

Doye, Damona. “Quicken for Farm Financial Records.” Agricultural Economics Extension, Oklahoma State University, http://www.agecon.okstate.edu/quicken/index.asp

“Financial Vocabulary.” Annie’s Project – Education for Farm Women, https://www.anniesproject.org/resources/

Griffith, Duane. “Interactive Spreadsheet Software, Balance Sheet, Statement of Cash Flow and Income Statement.” University of Montana, http://www.montana.edu/softwaredownloads/documents/software/RDFinancial_MT_RepresentativeFarmRanch-Oct-2011.swf

“Interpreting Financial Statements and Measures.” Center for Farm Financial Management, University of Minnesota, 2 Oct. 2017, http://www.cffm.umn.edu/products/IFSaM.aspx

Johnson, Jason. “Investing for Farm Families.” Department of Ag Economics, Texas A&M AgriLife Extension Services, http://articles.extension.org/pages/23204/investing-for-farm-families

Ladue, Eddy. “FISA – A Complete Set of Financial Statements for Agriculture.” Department of Agricultural, Resource, and Managerial Economics College of Agriculture and Life Sciences Cornell University,https://dyson.cornell.edu/outreach/farm-management-decision-aids.html;

Parsons, Bob, et al. “Farm and Ranch Financial Score Card.” University of Vermont, 2009, reviewed 2016, http://www.cffm.umn.edu/Publications/pubs/FarmMgtTopics/FarmFinanceScorecard.pdf

“Ranch Financial Statements for Management Analysis.” Texas A&M AgriLife Extension Service, 19 Aug. 2010, http://agrilifecdn.tamu.edu/coastalbend/files/2012/06/User-Manual-RanchFinancial-StatementsForManagementAnalysis-8-19-20101.pdf

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