This website serves Farmers and Ranchers in the Kansas AgriTourism Industry.
Welcome to Kansas AgriTourism!
This website has been developed specifically for Kansas farmers and ranchers involved in AgriTourism, rural properties where the traveler has an opportunity to experience farm and country life far from the hustle of the city.
the Kansas Agriculture Marketing Division and the Travel and Tourism Division of the Department of Commerce
and with financial assistance from Frontier Farm Credit.
We invite you to explore this website to find a variety of articles and resources that will help you succeed in agritourism.
If you have any questions, please contact the Department of Commerce, Travel and Tourism Division, and ask for the Agritourism Liaison.
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When You Must Borrow Money to Grow Your Business, Part Three
As we are either starting or expanding our direct farm marketing businesses,
the inevitable dilemma occurs:
"I don't have enough capital to do it right. Should I borrow, or should I just start small?"
 Note: This is the third of a series of articles about this timely dilemma, based on a series of interviews with Dennis Lawson, who works with Kansas farms and ranches for Frontier Farm Credit. To read part one, click here.
In the first article of this series, we talked about selecting a lender with the same business strategies as yours, and about what kind of information your lender will need before considering your loan application. In the second article, we talked about “assets,” “liabilities,” and your “owner’s equity.” You can review these articles by going to http://www.kansasagritourism.org/ask/ask_home.htm, and scroll down to the articles section.
In this article, we are going to briefly look at the documents known as your “Income Statement”, which is also called by the more descriptive name, the “Profit and Loss Statement (P & L).”
The profit and loss statement is used to measure your revenues and expenses over a specified accounting period– usually one year. When reviewed line by line, the P & L helps you analyze where you are making money, and where you are not. For example, by identifying a loss category, you may determine whether it is a necessary expense in the course of doing business; or whether it is an aspect of your business that requires closer evaluation and redirection.
Together with the most recent balance sheet, which identifies your assets and liabilities at a given point in time, the P & L statement can be used to determine the tax liabilities and profitability of your operation. They also are primary tools in helping you and your loan officer evaluate your operation’s expansion potential, as well as to do some projections and analysis regarding your loan request.
Up to this point, we’ve been dealing with the known facts of your business operation, and you and your loan officer have been studying the concrete documentation of your assets and liabilities as presented in the balance sheet to date, and the Profit and Loss statement. Now it’s necessary to project these numbers into the future, and create a Cash Flow Projection for your business.
Using the information you have available, the cash flow summarizes the inflows and outflows that are expected in the coming operating cycle. For example, reviewing your past income statements, you can project what you will likely spend on recurring purchases, such as seed, chemicals, or insurance, including a fairly accurate estimate as to how much that cost will increase. In this sense, the cash flow projection is something like a realistic budget for the coming year.
But the cash flow is also concerned with the timing of the ebbs and tides of your revenue and expenses. Over the winter, you may not have much income, but your expenses continue. In the spring, you are going to need money to purchase seed, equipment, etc. And in the summer or fall, the cash flow will finally reverse, and presumably more will begin flowing back into your operation than what went out.
A cash flow analysis helps determine:
- The need for operating lines of credit to cover months with cash flow deficits
- Periods of excess cash, when funds could be invested
- The need for changes in marketing or expenditure plans
- The cash flow feasibility of a new investment
- The cash flow in a transition year before the operation is fully functional
- Different scenarios, considering changes in price, yield and costs
By this time, you and the loan officer have a pretty solid idea as to what it will cost to go forward with your project, how long it might take to see a return on the investment, and how much assistance you might need to get from here to there.
In our next article, we’ll look at the Credit Bureau Reports, what a loan officer is looking for on the report, and how to improve your credit rating if necessary. We hope you’ll be looking for that article next month. If you have immediate questions or would like to know more about the services of Frontier Farm Credit, give Dennis a call, at 800-935-3081.
When You Must Borrow Money, Part One- Selecting A Lender Who Shares Your Interests
When You Must Borrow Money, Part Two- Understanding Assets and Liabilities
When You Must Borrow Money, Part Three- The Income Statement and Cash Flow Analysis
When You Must Borrow Money, Part Four-Credit Bureau Report & How to Improve Your Credit Rating
When You Must Borrow Money, Part Five-The Five Credit Factors
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