What isthe

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• What isthe
• Farm Financial Standards Council (FFSC)?

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Farm Financial Standards Council

• The Council FFSC came about because of the Farm
  Debt Crisis of 1983 to 1987.In January 1989 a
  Farm Financial Standards Task Force was created
  with the mandate to develop and publish
  standardized Financial Guidelines for
  Agricultural Producers.
• In 1996 the FFSC was urged to develop a uniform
  chart of accounts. This ultimately led, with
  funding and support from commodity groups, to the
  development and publishing in 2006 of the
  Management Accounting Guidelines for Agricultural
  Producers.

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Farm Financial Standards Council

• The Council today is a non-profit organization
  consisting of professionals representing
  agricultural producer groups, banking, the Farm
  Credit System, accounting, insurance companies,
  financial advisors, agribusiness companies,
  academics and universities, private finance
  companies, cooperative extension, and other
  experts involved with agricultural production and
  finance.

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FFSC - Mission Statement

• To provide a national forum for developing
  standards and implementation guidelines for
  preparers and users of agricultural financial
  information that will promote uniformity and
  integrity in financial analysis and reporting for
  agricultural producers.

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• Todays business environment in agriculture is
  becoming increasingly complex. Producers need to
  process large amounts of information from a
  variety of sources in order to operate
  efficiently and effectively. The accounting
  systems that farmers and ranchers employ must
  generate information for reporting to
• Creditors
• Government Agencies
• Ownership and Management

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• The Farm Financial Standards Council today offers
  two sets of Guidelines to aid producers in 1)
  capturing this information, 2) preparing reports
  and 3) performing financial analysis in a uniform
  manner
• Financial Guidelines for Agricultural Producers
• Management Accounting Guidelines for Agricultural
  Producers
• These are not static, but are subject to ongoing
  updating and review in the context of continual
  monitoring of financial issues that are relevant
  to agriculture

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Financial Guidelines for Agricultural Producers

• Reporting and analysis at entity level
• Heavy emphasis on external parties
• Financial position and performance

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Financial Guidelines for Agricultural Producers

• The Financial Guidelines for Agricultural
  Producers are intended to
• Promote uniformity in financial reporting for
  agricultural producers by presenting methods for
  financial reporting which are theoretically
  correct and technically sound
• Present standardized definitions and methods for
  calculating financial measures which may be used
  in the measurement of financial position and
  financial performance of agricultural producers
  and
• Identify alternatives for development of a
  national agricultural financial database.

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Financial Guidelines for Agricultural Producers

• The recommendations of the FFSC have been
  published in a Report containing three
  substantive sections
• Universal Financial Reports. This section
  contains suggested procedures and concepts for
  constructing farm financial statements for the
  purposes of financial reporting and financial
  analysis (i.e., the balance sheet, the income
  statement, the statement of cash flows, and the
  statement of owner equity).
• Universal Financial Criteria and Measures. This
  section contains material regarding definitions,
  computations, interpretations, and limitations of
  some of the most widely used measures of
  financial position and financial performance.
• Universal Information Management. This section
  contains suggestions for collecting and using
  standardized farm financial data for the benefit
  of agricultural producers and those that serve
  them.

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Management Accounting Guidelines for
Agricultural Producers

• Reporting and analysis by business components
• Heavy emphasis on management purposes
• Closely linked to business strategy

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The Need for the Managerial Accounting Guidelines

• Because the concepts and process addressed by the
  project are critically important for commercial
  producers
• Ultimately for benchmarking and continuous
  improvement applications
• Initially to create more robustness in internal
  accounting systems and understanding of cost
• Implementation and training activities continue
  in the private sector
• There is a strong need for a forum to achieve
  whatever consensus may be possible to at least
  provide a baseline, independent source of
  information for producers as well as suppliers

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Managerial Accounting Guidelines

• 114 page document
• 6 Core Concepts
• Requirement for accrual, cost-based accounting
  records
• Responsibility center approach for information
  accumulation and reporting will be used
• Integration of production factors/measurements
• Accumulated core transactional information
  supplemented with economic concepts and analysis
• Guided by consistency with Generally Accepted
  Accounting Principals (GAAP), commercial industry
  practice, multi-commodity applicability, and
  standardization capabilities.
• Accommodation of multiple period production
  cycles.

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Managerial Accounting Guidelines

• Eight Sections
• The need for understanding costs
• Basics of managerial accounting
• Management accounting levels of reporting
• Management accounting issues for agriculture
• Chart of accounts
• A process for setting up your system
• Glossary and definitions
• Appendix A

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This is not your fathers record system
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Information Sources What do we have? What
should we have?
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Questions We Ask Constantly

• Which strategies keeping us successful?
• What strategies should we change?
• How will strategic change impact performance?
• What information is needed to make good decisions
  and survive?

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Characteristics of a Good Decision

• Optimizes financial results least cost, most
  profitable
• Improves or sustains profitability
• Financially feasible Cashflows, services debt,
  and supports family living
• Contributes to long-term financial soundness
  proactivenot reactive
• Promotes quality of life and teamwork

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Mission
Quality of Life
Vision
Strategic Plan How we do it
Business Structure
Long Range Objectives
Short-term Goals
Succession Planning
Genetics
Marketing
Financing
Operating Plan- What We Do
Crop Rotation
Value- Added
Production
Capital Plan
Budget
Evaluate
Action Plans
Strategic Alliances
Diversification
KRAs
Environmental Stewardship
Technology Adoption
Tillage System
Growth
WF Version-Mike Boehlje Strategic Thinking Model
Why farmers are paid big bucks!
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Key Question for the Farm Manager

• How can managerial accounting
• be used to measure the impact of
• Strategic Decisions?

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5 Steps to Strategic Management

• Step 1 Analyze costs and activity in each
  management activity center
• Step 2 Identify strategies that influence
  performance
• Step 3 Simulate impact of alternative
  strategic decisions
• Step 4 Implement high impact strategic options
• Step 5 Measure the impact of decisions made

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Strategic Options Revenue Enhancement

• Adopt technology to improve yields
• Marketing options to maximize price
• Value-added
• GMOs
• Organics
• Off-farm supplementation
• Custom services to utilize underemployed assets,
  fixed overhead
• Lobby for more government support!

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Strategic Options - Cost Structure Management

• Strategic Alliances/Joint Ventures-inputs,
  equipment access
• Precision Farming
• Direct Seeding/NoTill
• Optimizing buy,lease, custom hire decisions
• GMO crops-Bt corn, RR
• Feed enhancements- rBST, Ralgro

• Pre-pricing key input costs interest rates,
  chemical/fertilizer, fuel
• Optimizing in-sourced vs. out-sourced services
  (spraying, fertilizing, seed procurement,
  accounting/CFO)
• Growth/OH Cost dilution

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How Do We ImplementManagerial Reporting?

• Learn core concepts of managerial accounting
• Standardize definitions and methodology
• Work through case study applications
• Test drive concepts in your business

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Implementation Issues

• Sorting out Accounting and Economic Analyses
• Identifying manageable segments
• Profit/Cost center report formats
• Handling unusual transactions cost recovery,
  revenue adjmt
• Integrating financial and physical quantities (,
  bu, acres, employees)

• Definitions Direct vs indirect variable vs.
  fixed
• Transfer pricing
• Alternatives for allocating indirect
  costs/overhead
• Other technical issues
• Inventory valuations
• Equipment gains/losses
• Tax vs. Book Depreciation
• Case Studies Sample Farms

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Major DifferencesEnterprising vs. MA

• Enterprising built foundation for MA
• OK for investors, bankers 1-horse management
  teamnot Responsibility Center Managers
• Investors bankers concerned about bottom line
• Managers concerned about responsibility areas
• Goals, decision-roles, strategies, resources
• Performance results, cost management

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MA not new revelationwhy such little adoption
in AG?

• Past margins allowed SLOPdidnt force focus on
  costsdecline in farm margins will FORCE more
  attention on MA
• CASH ACCOUNTING convenient, but set industry
  backwards for looking at accrual performance and
  management performance
• Whole entity analysis has dominated attention of
  lenders and educators

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Can You Answer?

• What is cost/unit to produce each commodity?
• How have costs changed in last 5 years?
• To what extent is operation relying on government
  payments to maintain profit?
• What are key strategies that will be re-evaluated
  in next 1-5 years?

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Obstacles to MA Adoption

• Procrastination know show do it
• Too used to shoebox approach doing it for tax
  purposes only
• Limited software capacity to implement
• Challenge of getting everybody on the farm on
  board with disciplines in record keeping
  required to make it work
• Doing timely entries of overhead transactions
  (i.e. depreciation expense) to give full
  accounting picture
• Perception that MA is too complicated so never
  start
• Production focusdo accounting because HAVE
  TOnot because they like doing it
• Historical focus on cash (tax) accounting vs.
  need for accrual foundation

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Summary MA New Frontier in Farm Management

• Complex, but teachable
• Adopters will have competitive edge
• Requires producers to brush up on basic
  financial management skills, first
• Will require major professional support CFO
  skills to implement
• New product opportunity for professional
  services industry
• Will require endorsement, encouragement and
  funding from stakeholders interested in farm
  viability

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You are welcome to learn, join, and
contributeHow to find us

• Farm Financial Standards Council
• N78W14573 Appleton Ave., 287
• Menomonee Falls, WI 53051
• [phone]
• cmerry_at_countryside-marketing.com
• www.ffsc.org