Ocean Farm Basic Financial Model: Guided Tutorial

Unknown Speaker  0:01  
All right now we're going to look at our ocean farm basic financial model. And the purpose of this

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spreadsheet is to help you understand how quickly you can expect to make back your initial investment, and what the different factors are that influence that so on our first tab here, we see our assumptions, and these are inputs to the model. These are the column here that is yellow. The cells that are yellow are for you to change based on what you are actually doing on your farm or what you expect to do on your farm. And it's much better to estimate something than to leave it blank, because not having a price for seed string, for example, that could end up being a big factor if you end up planting a lot of seed later on.

Unknown Speaker  0:55  
So the items we have here under the assumptions are the number of feet of seed string per spool, we'll say 200 that's what we do in the green wave hatchery, the price per spool. And then we have some farm performance metrics. So these are things like, how many pounds per foot you expect to get off your farm, and how much loss there's going to be. You know, we all like to think that everything's going to go perfectly, but sometimes it doesn't, and so it's nice to just build in an assumption about

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how much you think you might lose due to a seed string breaking or a weather event or something like that. And you can play with this number so you can see how it changes your model if that number is higher or lower.

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We also have a place here for you to put your initial startup investment, so how much money you intend to put into the business at the start, and then some assumptions around your business operations, like for the labor that you're going to use for harvest, how? What's their hourly rate? Are there any fringe benefits, like health insurance that you're going to be offering to be offering to salaried employees.

Unknown Speaker  2:03  
What kind of packaging are you going to have and how many pounds of kelp go in each package. Then we have some calculations around fuel cost per farm trip and the number of farm trips per season. And then we build in a number we're just calling contingency, which is similar to the estimated post harvest loss. We're just going to assume that things are generally more expensive than we are estimating by about 20%

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and that helps us build in a buffer so that we're not right up on our limits.

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We're being conservative in our estimates. So after we've made these assumptions, we're then going to look at our revenue. And so this is all the money coming into your farm, and we're going to

Unknown Speaker  2:54  
base this off of the number of feet of line or seed string that we're planting in each year. So you'll see up here I have, once again, these are yellow cells, which means they are intended for you to edit what you are actually going to do on your farm. Here we have a starting with just one test line of 200 feet. And then if that goes, well, maybe we'll plant four 200 foot lines in year three. We plan on switching to a 400 foot line. We're going to do five of them. Year four, we're going to stick with those 400 lines. We'll do eight of them. And then in year five, we'll do 13 of them. And so the next two lines, you'll notice that these are grayed out, and so that means you don't need to do anything. They're going to automatically populate based on taking these feet of line that you think you're going to have and multiplying it by the yield the assumption that was on this previous tab right here, the estimated pounds per foot.

Unknown Speaker  3:54  
So we we will have that number, and then we're going to adjust it based on our loss percentage. We said we're going to lose 20% so we're going to take that off and get new yield numbers based on that.

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We have a few other things that we can plug in here, so we're going to estimate how much of each of our harvest years we think we're going to sell as food. And as we've discussed, food products are generally going to go for more money than non food products. So we have a place here for you to enter in what percent of your crop will be going to food, and what the price per pound you think you can charge is

Unknown Speaker  4:37  
down below we have our non food sales, and because we've already filled in the percent of your crop that's going to food, the rest of it, we're assuming it's going to go to non food. You don't even need to feel it. Fill that in, it will auto populate. And then we get a number of pounds per a number of pounds that will go to non food. And here, once again, in these yellow.

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Cells you can fill in

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what price you think you can get for those non food, pounds of kelp. And at the end of this, we get our total revenue that we can expect to earn off of our farm.

Unknown Speaker  5:15  
And so that these are really important numbers. These are what's called the top line of our profit and loss statement, it's it's how much money is coming in the door, but it doesn't take into account any of our expenses. So for that, we're going to go to the next tab.

Unknown Speaker  5:32  
On this tab, we're going to estimate the costs associated with our farm. So yes, we made money, but we also put a lot into it. And so we need to make sure that the amount of money we're making is covering the amount of expenses that we have

Unknown Speaker  5:47  
at some point, ideally within five years. So here again, the yellow cells are for your editing, and the first cells have to do with farming and production. And to get these estimates, I have actually used our farm design tool, which I will show you.

Unknown Speaker  6:08  
So we previously had entered that we're going to have 200 feet of of line in our first year. So to get these expenses, I'm going to switch over to our farm tool, and you'll see that here I have a grow line of 200 feet.

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I have set my site factors to what I expect will be on my site. And then I'm only having one of these 200 feet arrays. And so then if we look over here, the approximate setup cost that's both including all of the gear that we need and the permit, lease and other costs.

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That total cost is $4,811

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so we're going to plug that into year one for year two. We said we were going to have 800 feet of line.

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So

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here's a second farm. I made 02 and we once again have a 200 foot grow line, but this time, we're going to have four of them. So the total cost for that is $8,810

Unknown Speaker  7:18  
but that's kind of adding on to what we did the previous year. So this formula

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is that eight, 8810

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number, minus the costs from year one. So just the new costs in year two, and we're going to do the same thing in year three. So for year three, we have 1200 feet of line. We have switched from a 200 foot to a 400 foot line. We have five of them, and so our approximate setup cost is $12,817

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going back to our expenses for year three, this calculation is 12,817

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minus everything we spent in year one and year two and so on. So you do that for all five years.

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The next three lines are calculated automatically based on our assumptions.

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And down below the line, in this bold here, we see the total farming and production expenses

Unknown Speaker  8:20  
for payroll and benefits, we're going to ask you to enter in some numbers that represent what you expect to pay yourself or any managers, a salaried labor, and then hourly labor, which we are suggesting that you estimate here based on your harvest amounts, and we are assuming one helper for working eight hours for every 2000 pounds of kelp harvested. And of course, you should feel free to modify that based on what is actually happening in your business.

Unknown Speaker  8:53  
Down below we have some general administrative costs. Remember, the lease is built into that farming and production section, so you don't need to put that here, but any other costs you might have, we've put some examples, like business insurance, boat insurance, the website. But if you have other lines you want to add here, you can definitely go ahead and do that,

Unknown Speaker  9:14  
and down at the bottom, the operating expenses. So we are adding up all of these bolded lines and getting a total and then down below is our contingency. So that is the 20% number that we put in under the assumptions.

Unknown Speaker  9:31  
And so we're just essentially inflating our total expenses by that amount to make our model a little bit safer for us.

Unknown Speaker  9:40  
Okay, so we have our revenues, we have our expenses. Now we are going to look at a very, very simple profit and loss statement, and not even really cash flow, but looking at how much cash we have on hand. So this is all being automatically calculated. There is nothing that you need to enter on this.

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Six

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on this tab, if you have entered in the yellow cells in the previous tabs. So this is pulling from all the previous tabs to look at how much money did we bring in from food sales, from non food sales. Those get added together for the total revenue, then we have our total expenses,

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and then at the end we have our net income. So this is the total revenue minus the total expenses. How much do we have left over at the end of the day? So you'll see, based on this model, our farm is expected to lose money the first two years. And not only is expected to lose money, but if you add those two numbers up, it's expected to lose about

Unknown Speaker  10:43  
$25,000

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in the first two years before it starts making money in year three. And this is to be expected most businesses lose money for a few years, until they get sufficient volume of whatever it is they're selling so that they can turn a profit. So this break even point, you'll often hear people ask about the break even point. Your break even point is year three. That's when this number turns from from negative to positive. But another really important thing to look at is how much cash you're going to have on hand. Because if you remember back in the assumption section, we said we're going to start with $20,000

Unknown Speaker  11:21  
and so if we look at our cash flow, and we take $20,000

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which we had to start, and we subtract the $13,000 that we are going to lose in the first year, you'll see we still have about 7000 left over at the end of year one. But when you add on that second loss for year two,

Unknown Speaker  11:42  
we go into the red, so we dip below our initial investment, which means we're going to have to find that money from someplace, whether that's a loan, whether that's friends and family, whether that's figuring out a way to sell more kelp in year two, more quickly scale up. There's something that needs to be done here in order to make sure that we can

Unknown Speaker  12:07  
not run out of money in our second year and push through to year three, where we expect to be profitable.

Unknown Speaker  12:13  
So this is a tool. It is something for you to take and make your own feel free to shoot us any questions over at the Community Hub, if you have any questions, thank you. Bye.