Holistic Financial Planning How it has worked for PACE

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Holistic Financial Planning

How it has worked for PACE

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Holistic Financial Planning

Daily Action List Targets (Intermediate) Objectives (Long Range) Strategy Policy Holistic Goal

Quality of life, Behaviors & Systems, and Vision Statements

Financial Decisions

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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

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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

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Holistic Financial Planning

Financial Planning vs. Accounting

Production vs. Profit Focus Traditional Model:

I – E = P

Holistic Financial Planning:

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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

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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?

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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?”

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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

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Step Two: How to Increase Net

Worth

Increase Assets

New equipment

Livestock

Land

Supplies and Inventory

Cash on Hand

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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)

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Step Three: Planning Income

Income PACE July, 2013 Sept., 2013

Goats 50 hd. $120/hd. $6000

Tomato 100Bu. $40/Bu. $4,000

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Step Four: Planning Profit

Income $10,000 Expense $3,000 $1,000 Debt Service $1,000

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Step 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)

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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

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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.

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Step Five: Enterprise Investment

Analysis – Identify Weak Link

Resource Conversion

Top Priority Investments:

• Education (about how to improve resource) • Fences

• Water Development • Soil Amendments

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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

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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

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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

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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.

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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 move

you toward your Holistic Goal.

When adjusting cash flow, cut maintenance first, then liabilities, then top priority investments. Logjam is last to cut.

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Step Six: Prioritizing Liability

Expenses

L

Land taxes

Lease fees

Loan interest

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Step Six: Prioritizing Maintenance

Expenses

M

Living expense

Phone

Utilities

Repairs

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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.

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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,

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Step Seven: Cash Forecast

Goats Tomatoes

July Plan 3,000

- Actual 2,500

Difference (500)

Cumulative Difference to date (500)

Sept Plan 3,000

- Actual 5,000 Difference 2,000

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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

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Step Eight: Net Worth & Profit

Profit=Increased Net Worth

An Increase Can Be Held As: Increased Assets

Decreased Liabilities BUT

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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

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Step Eight: Net Worth & Profit

Starting Net Worth Monthly Income & Expense Ending Net Worth

We plan until we get a result we like.

Relieves stress, worry and anxiety.

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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

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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

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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

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Lisa Bellows, Ph.D.

lbellows@dixonwater.org

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