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Basic Financial Planning Tools for your Greenhouse Business: Budgets, Cash Flows and Others

Basic Financial Planning Tools for your Greenhouse Business: Budgets, Cash Flows and Others. Cesar L. Escalante University of Georgia Getting Started in the Greenhouse Business and Propagation School March 19, 2004, Gwinnett Technical College. Storyline Ideas.

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Basic Financial Planning Tools for your Greenhouse Business: Budgets, Cash Flows and Others

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  1. Basic Financial Planning Tools for your Greenhouse Business:Budgets, Cash Flows and Others Cesar L. Escalante University of Georgia Getting Started in the Greenhouse Business and Propagation School March 19, 2004, Gwinnett Technical College

  2. Storyline Ideas • How much will my project/business cost? • Do I have this much money to start my project? • Where will I get this amount of money? • Will my project/business make money? • Will I have money when I need it?

  3. A. “How Much Will My Project/Business Cost” • The Project Cost • Capital Expenditures (Fixed Assets) • Land • Building Improvements • Machineries and Equipment • Working Capital • Pre-operating Expenses • Marketing and advertising • Inventories, receivables, payables

  4. Sources of Financing • Equity Contribution • Most lenders: at least 20% of project cost • Loan Financing • Fixed asset loan • Land and Improvements: more than 10 years • Machineries and equipment: 5-7 years • Working capital loan • Operating credit line • Term financing up to 5 years • Direct vs. guaranteed loans

  5. Example: Capital Costs for a Greenhouse Project

  6. My Financing Plan:Where will I get the money to start my business/project?

  7. B.Will My Project/Business Make Money? PROFIT AND LOSS (income) STATEMENT EXPECTED SALES COST BUDGET

  8. COSTS Variable Costs Fixed Costs Debt Servicing Costs

  9. COSTS • Variable Costs • Direct production costs: changes with each additional unit of production • Examples: Containers, fertilizers and chemicals, direct labor • Fixed Costs • Overhead, administrative costs • Does not depend on scale of production • Debt Servicing Costs

  10. VARIABLE COSTS Salary and Labor Machinery Cost Seeds and Plants Fertilizers & Chemicals Plastic Containers and Soil FIXED COSTS Marketing Taxes and Insurance Utilities General Repairs & Maintenance Office Expenses Miscellaneous Expenses Operator Salary Example of Cost Classification

  11. Break-Even Analysis • The point at which total costs (sum of variable and fixed costs) equal total revenues • in other words, ZERO profit or loss!

  12. “Will I Have Money When I Need It?” • PROJECT/BUSINESS CASHFLOWS • Timing of cash inflows and outflows Making money (“Profit”)  (does not necessarily mean) Having money when needed

  13. What to do with an Expected Cash Deficit? • Operating Loan? • More equity capital? • Selling idle assets • Leasing alternative, if applicable • Changing repayment plan (interest payments only in the first year)? • Cost reduction?

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