Using Spreadsheets for Managing Coop Budgets
By Benny Overton, Co-Executive Director
5 min read On June 28, 2021, SEC4CD hosted an event that walked through three spreadsheets using a hypothetical scenario including start-up budget, sales forecast, and breakeven model. We also examined key assumptions and tested business feasibility. This blog post details the five main takeaways from the training. The recording of the class and class materials can be found at the bottom of the page.
Manage Financial Data in an Organized Way
The method used to organize your financial projections can make a world of a difference. We recommend using a series of spreadsheets in the same Excel or Google Sheets document to see the interrelations between costs. Financial data is what is referred to when talking about all of the information gathered about pricing, cost relationships, and any other information that could have an impact on your business financially. In the example provided, the spreadsheets used to organize the data include: start-up costs, depreciation costs, labor costs, sales revenue, income statement, and break even analysis. The following definitions explained the purpose of each spreadsheet:
Start-up Costs includes all assets and expenses required for start-up
Depreciation Costs shows the depreciation of equipment over the span of the asset’s life, particularly high-value assets, to replace the capital asset
Labor Costs include the calculation of wages and benefits costs over time
Sales Revenue shows the revenue projected to be received from products and/or services sold that accumulates to total sales
Income Statement shows income and expenses over a given period of time
Break-Even Analysis is the final assessment between all the spreadsheets, specifically highlighting sales revenue and income statement, to show whether or not the coop is making a profit or a loss
Last, being organized allows the ability to be more strategic and be clear about assumptions being made within the financial model.
Use Reliable, Quality Data Sources
The quality of the information you have matters. Good, publicly available information can come from U.S. Census Bureau and the American Community Survey on customers and potential demand, Bureau of Labor Statistics has information on Labor cost, and research institutes such as ProPublica, Urban Institute, Brookings Institute, and Center for American Progress have a range of different information. Trade associations can provide more information about operations and you can also do your own original data collection. Finding a balance between using multiple sources will only strengthen your financial predictions.
Be Open to New Information
All financial projections are based on basic assumptions about the operations of the business, customers, and external business environment. It is critical to consider “what-ifs” and be open to new information or data that may come your way in order to incorporate those changes into assumptions. Be open to change as your understanding of the information improves. This will allow you to see the impact that this “what-if” will have on the business and how it would impact your planning. That is, taking into consideration this new data has the opportunity to change or not change your business planning.
In the example designed for the class, we focused on honey and as it turns out, when you look at the data, the bees wax is probably the better undertaking as for profitability and seasonality than selling honey.
Consider Multiple Financial Scenarios
Spreadsheets allow you to be nimble with your financial planning and allow you to examine business scenarios without having to reinvent the whole spreadsheet. This saves time and energy. There are a lot of factors that can impact decision-making, like the number of employees and employee benefits, so it is important to consistently watch the relationship between costs. In the example of wages, wages can impact the sustainability of your business including decision-making and pricing which affect’s your business’s ability to compete based on pricing.
Other scenarios to be aware of are the cost differentials between making products yourself, hiring someone to do it, or completely contracting it out. Another example, buying or renting equipment which also includes the need to consider depreciation of equipment—a cost that doesn’t need to be considered for renting equipment. Testing these scenarios includes looking at the impact it has on the break-even.
Link sheets together so each sheet is correctly informed when it’s adaptable to changing factors that are included in the sheet.
Be Proactive About Financial Planning
Financial planning essentially is the financial feasibility of the business model you are proposing. Before you execute your idea, “testing” the business financials is critical. This process of financial planning is an iterative process of repeated movement between the business model and financials to build out a feasible and financially sustainable business.
Download Class Materials Here
Watch Class Recording Here