"Planning fro Profit" is a huge success

The seminar was a huge hit with the attendees. We enjoyed the company of 36 alpaca ranchers from accross the midwest. There were folks from as close as Pennsylvania and as far away as Louisiana and Minnesota. We shared a variety of experiences, good food, great wine and a passion for the alpaca industry.
We plan to hold the next "Planning for Profit" seminar in late February.

Planning for Profit

Well, we had another beautiful day today here in northeast Ohio and I spent it getting ready for our Planning for "Profit in the Alpaca industry" seminar next weekend. The weather here can be a bit unpredictable this time of your so all of the alpacas will be penned in the riding arena-a mammoth structure that will block all of the elements but will provide all of the room and light needed to conduct the alpaca classing and fiber evaluation segments of the program.
Alan Jude and I have agreed to give a free breeding to any one of our herdsires and Nick Pici (CPA) for the Dolan Group will offer free tax planning advise to the attendees.
This is going to be a fabulous, one-of-a-kind program, good fun, great food and a chance to learn from successful farmers. Perfect for beginners.
Well, back at it.

Giving Thanks on Thanksgiving

What a great day for sitting back and taking stock of all the blessings I and may family enjoy.
We had a beautiful sunny 55 degree day here in Ohio. My daughter was coming in from North Carolina and the whole family was soon to assemble at the house for dinner. In addition, we just got word that our niece's health has improved and surgery has been averted. While I was walking back to the barn to feed the alpacas, the sun was warming me and thoughts of my family, friends, good food came to me in a rush.
It was one of those extraordinary moments when you simply "get it."
What a family...what a country... what a life!

Planning For Profit in the Alpaca Indusrty

In October, Alan Cousil, Jude Anderson and I began talking about the concept of a "Planning For Profit" seminar and realized that an educational offering focused on the essential elements of successful alpaca farming is long over due.

I have partnered successfully in owning alpacas with a group of CPA's who have researched the tax planning issues extensively. Their expetise combined with my experience as a senior manager of a $3.2 billion financial institution lends a unique perspective to the discussion of farm financial management.

Add to that the breeding, selection and show experience of Alan and Jude, and you have the makings of a phenomenally impactful education experience.

We're really looking forward to the weekend.

2006 Alpaca Auction Prices

I've heard a number of people lately lamenting that there are too many auctions these days resulting in depressed alpaca prices. While I do agree there are far more auctions and more lots within each auction today than there were a few years ago, I don't agree with the notion that the number of auctions is resulting in depressed prices. As an industry, we have always enjoyed the "demand side" economic benefits of too few good animals to fill the demands of of our breeding programs.

As a young industry, we must be cautious of allowing the ebbs and flows of auction prices to flavor our outlook for the industry. Over the past few years, there have been a number of record setting sales. This activity, although wonderful for the sellers and titillating to those considering entry to the industry, is not as good for the industry as the posting of consistent and stable sale prices.

If anything, auction prices are driven by the quality of animals being offered. This is as it should be! If prices are at all disappointing, it's because there are too few elite animals available for auction lots.

At all of the auctions I have attended, price has been commensurate with quality. The animals with the best fleeces, confirmation, color and bloodlines have brought the highest prices while those of lesser quality have brought the lowest. This is a good thing! It shows that the alpaca market is efficient in that quality is rewarded by price.

In reviewing the Celebrity Sales auction results for 2006, the average price ranges show signs of stability in that they mirror the results from prior years. If one eliminates the high priced animals from the calculation, the averages remain well within acceptable ranges.

A summary of the results is as follows:

Date /Auction /Avg Price /High
9-06 /Eastern Extreme /$29,000 /$165,000
7-06/ Parade Of Champs /$42,500 /$205,000
5-06 /AOBA /$32,000 /$100,000
4-06 /Futurity/ $42,000/ $150,000
2-06 /Snowmass/ $59,000 /$500,000
1-06/ Am. Choice /$28,000/ $ 85,000

It will be interesting to see how the auction side of the industry will evolve as we move forward. As the number of high quality alpacas in the domestic herd increases, I believe a bifurcation will occur wherein elite and production alpacas will be sold at separate auctions.
My humble opinion.

The Value of Breeding For Quality

We have a medium fawn girl out of 4P Pachacuti who has everything one could desire in a producing female such as fleece density and coverage, confirmation, heavy bone and a vigorous constitution. the only thing lacking in this girl is fineness. We had her bred to MFI Glacial storm in an attempt to improve on the fleece characteristics of the cria. On June 19, 2006, she gave birth to a beauthful medium brown femal and at this point, it looks like we've accomplished what we intended. Of course we can never measure how much of the outcome was "engineered" by our astute planning (an outcome for which I am happy to take ful credit) and how much was the random act of nature but the result has convinced me of the value in always acquiring the best feamles one can afford and breeding them to the very best herdsires available. There are no short-cuts.
My purpose here is not to promote a particular herdsire. Rather, it is to support the value of breeding selections based on the use of progeny testing.
As we looked at the phenotype of Glacial Storm offspring and their micron counts, we deterimed that the pairing of our Schnookums and GS had the potential to achieve our breeding goal.
I can say, I've never seen a fleece like this on an alpaca before. At an early age, she shows outstanding high frequency crimp, stapling and luster. In addition, she has inherited all of her dam's strength and vigor.
She'll definately be hitting the show ring in 2007. We' expect great things from her.

The Finer Points of a Business Plan

My web site contains a page addressing the value of writing a business plan and gives a detailed outline. In addition to my web site, there are many other practical references for preparing a business plan. The following is a brief summary from How to Really Create a Successful Business Plan October 2000 By: David E. Gumpert

Keep in mind that after the first two items, the titles of the subsequent sections can vary. But every business plan should cover the subjects addressed in this overview:

Cover Page

On the cover page goes the name of your company, its address and phone number, and the chief executive's name.

Table of Contents

This should include a logical arrangement of the sections of your business plan, with page numbers.

Executive Summary

This is the heart of the business plan. It is so important to both the preparation and final effectiveness of the plan.

The Company

The business plan must provide basic information about your company: its past, present, and future. If it's a start-up, about the evolution of the market. Information is necessary as well about your company's current status. And what is it's future strategy? What are its goals and what actions are required to achieve its goals?

The Market

This is your assessment of the customer groups you've targeted, other customer groups you might pursue, the competition, and marketing efforts thus far. Is the market growing, how fast is it growing, and what evidence do you have that it is interested in your product or service?

The Product/Service

Here is where you describe your product and/or service and what makes it special and attractive. What are the components of the product/service? How much do you charge? What services don't you provide? What kind of warranties or guaranties do you provide and what are its particular provisions?

Sales and Promotion

This is your assessment of how you intend to carry out your marketing plan--how you'll reach your customers and sell to them. Do you have an in-house sales force or will you use direct mail, or contracted telemarketers to sell your product/service? What kind of public relations do you have planned? Will it be done internally or will you hire a public relations firm?

Finances

Here is where you detail your past results, if there are any, and your expectations for the future. This section should include cash flow projections, profit-and-loss statements, and balance sheets. All the figures should be cast in traditional accounting format.

Keep in mind. . . The order of the subjects listed here is not random; they are given in order of importance. It is no accident hat information about markets comes before information about products/services

As I've indicated, there's more than one way to write a business plan. Indeed, there are infinite variations on the theme. The only thing that really counts is if the plan does what it's supposed to do: sell you and others whose support you need.

Small businesses benefit from Section 179 deduction

Typically, if property for business has a useful life of more than one year, the cost must be spread across several tax years as depreciation with a portion of the cost deducted each year. But there is a way to immediately receive these income tax benefits in one tax year. The provisions of Internal Revenue Code Section 179 allow a sole proprietor, partnership or corporation to fully expense tangible property in the year it is purchased.

And tax-law changes over the past few years have made this option much more appealing by dramatically increasing the amount that can be written off immediately. Changes first made in 2003 and then extended in 2006, mean that businesses can write off more of their capital expenditures through 2009.

Enhanced section 179 expensing now is at the base level of $100,000 with that level indexed for inflation for the last several years. This is four times more than the previous-law limit of $25,000. In addition, the investment limitation also has been increased to more than $400,000 and it, too, is indexed for inflation.

These changes mean that in 2006, a business can expense $108,000 in capital expenditures up to an overall investment limit of $430,000. Eligible propertyProperty that may be written off in the tax year of purchase, rather than depreciated over the asset's useful life, includes:

• Machinery and equipment· Furniture and fixtures
• Most storage facilities
• Single-purpose agricultural or horticultural structures
• Livestock
  

Also, the definition of eligible section 179 property was expanded by the 2003 legislative changes to include off-the-shelf computer software. Previously, it had to be written off over three years.

The IRS says ineligible property includes:

• Buildings and their structural components
• Income-producing property (investment or rental property)
• Property held by an estate or trust
• Property acquired by gift or inheritance
• Property used in a passive activity
• Property purchased from related parties
• Property used outside of the United States
  

How, when to use deduction The Section 179 election is made on an item-by-item basis for eligible property. You don't have to use it on all eligible property bought in that year. The election must be made in the tax year the property is first placed in service.

The Section 179 deduction isn't automatic. Taxpayers who want to take the deduction must elect to do so. You make the election by taking your deduction on Form 4562. When you file this form, attach it to either of the following:

• Your original tax return filed for the tax year the property was placed in service, regardless of whether you file it timely.
• An amended return filed by the due date, including extensions, for your return for the tax year the property was placed in service.
  

Make sure you make the election when you file your original income tax return for that year. You can't later amend your return to elect Section 179. The only exception to this is if you amend your return before the actual due date, including extensions, of your original return.
For example, the maximum extended due date to file your return is Oct. 15. You file your return on Sept. 1 and then realize you didn't utilize the Section 179 deduction. You still have until the Oct. 15 deadline to file an amended tax return to claim the deduction.

Laws tweaked to enhance Section 179 deductionsCongress periodically reviews the amount a taxpayer can claim as the annual Section 179 amount. As part of an economic stimulus and tax-reduction package signed into law in May 2003, the expense limit was temporarily hiked from $25,000 to $100,000.

The Tax Increase Prevention and Reconciliation Act (TIPRA), signed into law on May 17, 2006, expanded this increase through 2009.
And an inflation adjustment component means that the $100,000 will increase while TIPRA is in effect.

Lawmakers upped and subsequently extended the section 179 deduction amount in the hopes it would encourage businesses to invest in new equipment sooner. However, when it comes to vehicles purchased utilizing the Section 179 break, legislators took back some of the benefit as it related to large sport utility vehicles. When the limit was originally increased, business owners were allowed to select for company use one of several light-truck models (which included many luxury SUVs) weighing more than 6,000 pounds fully loaded and write off most, if not all, of the costs on their tax returns. That changed on Oct. 22, 2004, when the American Jobs Creation Act became law; now only company vehicles weighing 14,000 or more are eligible for the larger deduction amount.

Any amount of property over the maximum deduction must be depreciated.
Limitation on annual amount of property purchased There also is a limit on the annual total of deductible property. If the cost of qualifying Section 179 property you put into service in a single tax year now exceeds a statutory base of $400,000 then you can't take the full deduction.
This amount also is indexed for inflation and runs through 2009.
For 2006, every dollar above $430,000 (the inflation-adjusted limitation) that a business owner spends on eligible property, he loses a dollar in deductions.
For example, a manufacturer completely re-equips his facility this year at a cost of $437,000. This is $7,000 more than allowed, so he must reduce his eligible deductible limit to $101,000: the current $108,000 expensing limit minus $7,000.
Deduction limited to taxable incomeYou have now determined the maximum deduction based on the amount of property purchased during the year. You now must pass the aggregate income hurdle.
Your deduction is limited to your aggregate taxable income from the active conduct of any trade or business. Active trade or business includes employee and spouse's wages, sole proprietorships, partnerships and S corporations. Basically, this means that unless you have other sources of business income, your Section 179 deduction can't create a taxable loss for your business.
More business owners are able to take advantage of the deduction when they combine their company earnings with those of a spouse or money earned in addition to (or before starting) their own company income.
For example, you are someone else's employee for most of the year. Your wages exceed the Section 179 deduction. You start your own business at the end of the year and purchase equipment and furniture. Even if your new business doesn't generate gross income that year, you can still take the Section 179 deduction on the new equipment and furniture. Why? Your wages exceed the Section 179 deduction.
This aspect of inclusion also applies to a spouse. For example, you earn annual wages of $60,000 as an employee. Your spouse doesn't work during the year but begins a new business at the end of the year. Your spouse purchases and places in service $15,000 of Section 179 property at the end of the year. Your spouse's business doesn't generate gross income at the end of the year. Even though your spouse hasn't earned trade or business income for the year, the Section 179 deduction of $15,000 is still allowed in full since your wages count as trade or business income.
Any amounts disallowed by the trade or business taxable income limit are carried over to the next year and added to the cost of any eligible property placed in service in that year. The same rules for maximum deduction, maximum annual investment and taxable income apply to the next tax year as well. .
ConclusionThe tax tip explains the process for using Section 179 to fully expense certain business expenses immediately instead of depreciating them across a period of several years. You should also be aware of less obvious advantages of the Section 179 deduction:
· Lowers adjusted gross income, which could help you qualify for various deductions which are limited by AGI.
· Lowers earned income, which can increase your earned income credit.
· Is allowed in full even if the eligible property is placed in service on the last day of the year.
This tip also includes examples that demonstrate the three limits: the maximum dollar limit, the investment limit, and the taxable income limit. By including employment and spousal wages, many taxpayers find they are able to take advantage of this provision. Are you interested in more information? Refer to Chapter Two of IRS Publication 946: How To Depreciate Property.