What’s Agriplan About ?
Evaluating plans and financial risk assessment , when it comes to making important decisions in a farm environment , is difficult due to the number of variables involved and the fact that the activity involves dealing with climate , nature and different market conditions and uncertainties.
Despite this, farmers need to be able to evaluate their budgets and plans under a range of different “ what if “ scenarios to assess the risk, prior to making key decisions. To date, due to the time and complexity involved , few farmers undertake this rigorous assessment prior to making these decisions.
Important decisions are still made by rule of thumb, previous experiences , gut feel and talking to family , friends and their professional advisers.
Unfortunately the financial consequences of getting these decisions wrong can be critical when it comes to the viability and long term sustainability of the farm business.
Why is evaluating Plans prior to their implementation important ?
Business managers need to be able to quickly project the likely outcome of various plans and assess the potential financial risks associated with those plans prior to making and implementing major decisions .
This ability to be able to stress test plans prior to implementation is an essential technique to reduce risk and improve the success of management of the farm .
How does Agriplan work ?
The program is composed of two components . The forward projection Scenario simulator and the annual cash flow planner.
The forward projection scenario planner program has been designed to operate along the lines of how farmers think and as a result it is easy and efficient to use.This was the primary aim of the program – to come up with a tangible meaningful results quickly and to allow the modelling of “ what if “ scenarios at the press of a button.
The focus of the program is on planned Cashflow – “Sources and Uses of funds” under various climatic , production and market conditions to model the financial consequences of these plans on the farmers assets and liabilities and their projected wealth in the future.
The program is basically a calculator or simulator that allows the user to formulate a base “Year in Year out “ projected cashflow and equity position plan for as many years the user wishes to model.
The starting point is the current Statement of Position prepared in the Resource planner.
The initial base plan is then copied so the user can enter the new plans such as projected enterprise rotations, production assumptions, along with capital funding and acquisitions and operational management plans they wish to evaluate. By editing various variables, at the press of a button, the user can model the financial consequences of a range of different weather, production and economic conditions. For example the business may wish to acquire a new property and they want assess the financial risk in the event family is faced with two years of drought.
The program allows the running of multiple scenarios.
Scenarios can include plans such as buying a new farm , leasing additional farmland, changing enterprise mix , buying significant off farm assets , replacement and upgrade of equipment and how the effect of unexpected climate , production and market fluctuations can affect the viability of these plans.
Using this information they can then select the most appropriate low risk option.It is a bit like learning to fly a commercial airliner. When the pilot commences , they first get to fly a simulator that models all sorts of different flying conditions . The same applies with assessing business plans .
The key to this type of modelling is to generate accurate projections quickly. As a result we had to develop a program where most of the information is automatically entered and one where the users can play around with different scenarios to come up with easy to understand outcomes immediately.
The “year in year out” scenario planner models the overall financial consequences of the whole farm year and to assist with establishing month by month cash flow requirements in year one or any other subsequent years, the scenario program is supported by an annual cash flow planner.
Agriplan Cashflow Planner
Planning monthly cash inflows and out flows and projecting monthly trading account balances throughout the first year of the projected plan is essential in determining the annual working capital funding requirements for the overall projected business plan over the period modelled.
How does the cashflow planner work ?
The cash flow statement is a simple program detailing monthly inflows, monthly outflows and the resulting monthly surplus/deficit for each month and ac cumulatively for the whole year.
In the cashflow you simply type in the value of the income or expense item or use the work tables that enable the user to formulate the underlying assumptions and calculations used to arrive at various balances entered into the cash flow. e.g. Grain income the work table would show – 2.5 tonnes / hectare @ 500 Hectares @ $300/tonne = $375,000.
The farmer can then print the 12 month report and supporting work tables to PDF to review and share with the bank and their advisers.