1 / 26

Financial Risk Management in SW Medicinal Herb Production and Marketing

Financial Risk Management in SW Medicinal Herb Production and Marketing. Charles Martin, Ag Specialist NMSU Sustainable Agriculture Science Center, Alcalde, NM. Acknowledgements. New Mexico State University Western Center for Risk Management Education, Washington State University USDA/NIFA

Download Presentation

Financial Risk Management in SW Medicinal Herb Production and Marketing

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Financial Risk Management in SW Medicinal Herb Production and Marketing Charles Martin, Ag Specialist NMSU Sustainable Agriculture Science Center, Alcalde, NM New Mexico State University

  2. Acknowledgements • New Mexico State University • Western Center for Risk Management Education, Washington State University • USDA/NIFA • This material is based upon work supported by USDA/NIFA under Award Number 2010-49200-06203. New Mexico State University

  3. Goals and Objectives • Goal – Fully understand the financial risks that producers participating in the project face and how the proposed producer results, if applied, will lead to producers making an improvement in their ability to manage those financial risks. • Growers will need to describe accurately what the financial risks are, what creates the financial risks that your project is addressing, and be able to show their direct correlation to other session topics that will result in the improved ability of your producer participants to manage the financial risks you have identified in the Proposed Results section. • Obtain a good understanding of financial risk management among growers and entrepreneurs. • Demonstrate knowledge and understanding by development of a financial risk management plan. • Proposed results: implementation of the financial risk management plan. New Mexico State University

  4. What is Financial Risk Management? “Managing credit, market and financial instrument risks” Debt/borrowing management/avoidance Managing Cash flow, (seasonality, storage, inventory), fraud risks, market volatility (price/inputs) Foreseeing/planning for delayed return on investment New Mexico State University

  5. The Risk Management Process: Step 1: Assess Grower Circumstances • Net worth • Asset/liability ratio • Liquidity • Access to financing • Understand the nature of financial risk New Mexico State University

  6. Step 2: Identify risksStep 3: Develop a risk management planStep 3: Implement your planStep 4: Evaluate your results New Mexico State University

  7. Identifying Financial Risks • Capitalization (start-up, operating, expansion) • Cash flow (perennials, seasonality, demand/sales fluctuations) • Delayed return on investment • Excessive production overhead/capacity • Unforeseen/unexpected costs/losses • Debt/borrowing New Mexico State University

  8. Other (related) types of risks Marketing risks – how much to grow, how much product to make? (keep records of sales, volumes, prices and dates) Unknown market volume and trends Crop losses interrupts cash flow, unable to meet payments New Mexico State University

  9. Include Hidden/Indirect Costs!! Insurance Travel expenses Vehicle maintenance/repair/overhead Utilities Employee/workforce training New Mexico State University

  10. Unforeseen/Unexpected Costs Vehicle /equipment breakdowns Accidents System failures/ power outages Family emergencies New Mexico State University

  11. Market Risks/Opportunities Boom/bust cycles Seasonality (availability, demand) Limited niche market = rapid saturation Can turn disadvantage to an opportunity (small entrepreneurs can respond more quickly to rapidly changing situations) New Mexico State University

  12. Managing uncertainty New Mexico State University

  13. Delayed Returns on Investment New Mexico State University

  14. Know Your Financial Risks! Having a business plan Knowing your cost of production Knowing your break-even price (to cover variable and total costs) Managing cash flow Reducing/Avoiding Debt New Mexico State University

  15. Financial Management Tools Business Plan Enterprise Budget Cost/Benefit Analysis Cooperative/Group Effort or Financing New Mexico State University

  16. Start with a Business Plan Assessment of your enterprise’s capacity of making money Solve/fill in unknowns to the equation (sensitivity analysis) Work backwards from a $$ target Compare to fixed/variable costs New Mexico State University

  17. What is a Business Plan? business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals. Business plans may also target changes in perception and branding by the customer, client, tax-payer, or larger community. When managing a business, a business plan, or B-Plan, is often confused with the term Marketing Plan. When the existing business is to assume a major change or when planning a new venture - a 3 to 5 year business plan is essential. New Mexico State University

  18. Work Backwards Start with marketing, end with production. Marketing is THE big unknown. New Mexico State University

  19. The Known, The Unknown, and The Unknowable Use dimensional analysis Solve for the unknown. When more than one unknown, plug in estimates (sensitivity analysis) New Mexico State University

  20. An Iterative Process First an educated guess, then decisions based on info collected from others, then collected directly from one’s own business. Experience is gained along the way. New Mexico State University

  21. Assessing and Balancing Tradeoffs New Mexico State University

  22. Avoid Debt with Compound Interest ! New Mexico State University

  23. New Mexico State University

  24. Debt-Free Financing Cooperative investments Shared facilities, equipment, labor Incremental investing – first by hand, then small-scale equipment, then larger equipment/facilities New Mexico State University

  25. What about grants? • Grants are not handouts or bailouts • Not for capitalization • Not a way to salvage a business • VAPG – Value-Added Producer Grant http://www.rurdev.usda.gov/rbs/coops/vadg.htm • SBIR – Small Business Innovation Research http://www.sbir.gov/ • NMDA Specialty Crop Marketing Grant http://nmdaweb.nmsu.edu/marketing-and-economic-development/hidden-files/Binder326.pdf New Mexico State University

  26. Goatheads as a working example New Mexico State University

More Related