Holistic Financial Planning
How it has worked for PACE
Holistic Financial Planning
Daily Action List Targets (Intermediate) Objectives (Long Range) Strategy Policy Holistic GoalQuality of life, Behaviors & Systems, and Vision Statements
Financial Decisions
Holistic Financial Planning
• Making financial decisions toward your Holistic Goal
• Facilitating important conversations
• Analyzing your enterprises
• Assessing potential new enterprises
• Planning for profit upfront (not just production)
• Defining income streams
• Calculating a cap for all expenditures
• Prioritizing expenses to reinvest in your operation
Holistic Financial Planning
The Nine Steps to Financial Success
#1 Annual Review #2 Assess Starting Net Worth #3 Plan Income #4 Plan Profit #5 Enterprise Investment Analysis #6 Prioritize Expenses #7 Cash Forecast #8 Assess Ending Net Worth #9 Monitor for Results
Holistic Financial Planning
Financial Planning vs. Accounting
Production vs. Profit Focus Traditional Model:
I – E = P
Holistic Financial Planning:
Holistic Financial Planning
Plan
The best we can do at a given time
Replan
Does not mean our first plan was wrong.…conditions changed.
…allows us to reach our goals. …we are responsible.
…we make it happen
Holistic Financial Planning
What’s your Process?
Get your team together and figure out a time and process to make the financial plan happen.
How do you integrate what you already do with this process?
Step One: Annual Review - Assess
Progress Toward Holistic Goal
Logjam
Is there anything keeping us from making SIGNIFICANT progress toward our Holistic Goal? (Across the operation)
If so, this is a Top Priority Investment.
Adverse Factors
Are other factors adversely affecting the business as a whole?”
Step Two: Assess Starting Net
Worth - Building Net Worth
Assets
Cash (last year sale goats) 6,000
Hay, grass 2,000 Equipment (list) 12,000 Other (savings) 50,000 Total $70,000 Liabilities Loan $1,000 Total $1,000 Net Worth $69,000
Step Two: How to Increase Net
Worth
•
Increase Assets
–
New equipment
–
Livestock
–
Land
–
Supplies and Inventory
•
Cash on Hand
Step Three: Planning Income
Tools to help •Your Holistic Goal
•Gross Profit Analysis •Enterprise Budgets •Your Dreams
•Your Passion & Skills
•Matches to your infrastructure and resources (management inventory)
Step Three: Planning Income
Income PACE July, 2013 Sept., 2013
Goats 50 hd. $120/hd. $6000
Tomato 100Bu. $40/Bu. $4,000
Step Four: Planning Profit
Income $10,000 Expense $3,000 $1,000 Debt Service $1,000Step Four: Planning Profit
I want a
profit of X$ or X%. For:
Savings (buffer)
Investing (addressing key problems like logjam, enterprise weak links, or adverse factors)
Step Five: Enterprise Investment
Analysis
Resource
Conversion Conversion Product Conversion Marketing
Sunlight and/or raw resources including money Products and/or services Marketing of products and/or services
Step Five: Enterprise Investment
Analysis
• A tool/method to prioritize expenditures • Perform it on each enterprise.
• Identify the weak link and brainstorm solutions. • Use the testing questions to select solutions.
• Cost out solutions and record it on the “Investment” Worksheet.
Step Five: Enterprise Investment
Analysis – Identify Weak Link
Resource Conversion
Top Priority Investments:
• Education (about how to improve resource) • Fences
• Water Development • Soil Amendments
Step Five: Enterprise Investment
Analysis – Identify Weak Link
Product Conversion
Top Priority Investments:
• Education (how to improve product) • Expense to get more milk per animal • Get more animals or better genetics
Step Five: Enterprise Investment
Analysis – Identify Weak Link
Marketing Conversion
Top Priority Investments:
• Education (how to sell your product)
• Change Enterprises (due to market conditions) • Time of Marketing
Step Six: Prioritizing Expenses
• Be a price maker not a price taker
• Invest in your business (all expenses are not equal)
I – P = E
Top Priorities
Maintenance
Step Six: Prioritizing Expenses
• T: Top Priority Investment. Fix the weak link (or logjam or adverse factor).
• L: Liabilities (essential and constant or morally obligated)
• M: All expenses that aren’t “T” or “L” are Maintenance.
Step Six: Prioritizing Top Priority
Expenses
T =
You want to free up as much money to invest back into the business in the best place to moveyou toward your Holistic Goal.
When adjusting cash flow, cut maintenance first, then liabilities, then top priority investments. Logjam is last to cut.
Step Six: Prioritizing Liability
Expenses
L
Land taxes
Lease fees
Loan interest
Step Six: Prioritizing Maintenance
Expenses
M
Living expense
Phone
Utilities
Repairs
Step Six: Prioritize Expenses
Expense PACE Jan 1/06 Dec 31/ 06
(T) Goats, crop $4,000 Mar.
(L) Lease $500 Jan.
(M) Water $500 yr.
Step Seven: Cash Forecast -
Balance Plan
Subtract total expenses from total income plus the profit you planned to make sure your PLAN balances. If your PLAN does not balance you can:
• Cut expenses
• Use other revenues to offset deficit
• Increase income (higher prices, sell more products,
Step Seven: Cash Forecast
Goats TomatoesJuly Plan 3,000
- Actual 2,500
Difference (500)
Cumulative Difference to date (500)
Sept Plan 3,000
- Actual 5,000 Difference 2,000
Step Eight: Ending Net Worth
Assets Start End
Cash $6,000 $7,500
Hay/grass $2,000 $3,000
Equipment (list) $12,000 $11,000
Other (Savings) $50,000 $49.000
Total $70,000 $70,500
Liabilities Start End
Bank Loan $1,000 $0
Total $0 $0
Step Eight: Net Worth & Profit
Profit=Increased Net Worth
An Increase Can Be Held As: Increased Assets
Decreased Liabilities BUT
Step Eight: Net Worth & Profit
Strategic Growth in Operation
(5-10 year program to double grass/stocking rate)
# of Goats 50 60 70 80 90 100 Income/Goat $160 $160 $160 $160 $160 $160 Variable Cost $60 $60 $60 $60 $60 $60 Gross Profit $100 $100 $100 $100 $100 $100 $100 Overheads $10 $9 8 8 8 8 Net Profit/Cow $90 $91 $92 $92 $92 $92 Profit/Ranch $4,500 $5,460 $6,440 $7,360 $8,280 $9,200 Increase +1.21 +1.43 +1.63 +1.84 +2.04
Step Eight: Net Worth & Profit
Starting Net Worth Monthly Income & Expense Ending Net WorthWe plan until we get a result we like.
Relieves stress, worry and anxiety.
Step Nine: Monitor & Control Your
Plan
Do a financial plan and monitor it • A map of where we are going • A light to travel by
Testing Financial Decisions
The Seven Testing Questions
1. Root Cause
2. Weak Link Tests: social, biological, and financial 3. Comparing Options
4. Gross Profit Analysis 5. Input Analysis
6. Vision Analysis 7. Gut Check
Holistic Financial Planning
Plan
The best we can do at a given time
Replan
Does not mean our first plan was wrong.…conditions changed.
…allows us to reach our goals. …we are responsible.
…we make it happen
