My farm income spreadsheet is worth $1.50/lb.
8 February 2010
Not many people remember VisiCalc but I do. I remember trying it out,
just to see what all the fuss was about. After playing with it for a
few minutes I grew bored and went back to my computer games. I was
still in high school at the time so I didn't quite grasp how important
keeping accurate accounting records can be to a company. I have
since learned that being able to wrangle a spreadsheet is a skill all
good business owners should have.
VisiCalc is generally considered to be the first real spreadsheet
application. I once saw an interview with the two creators of
VisiCalc. After writing the first version they had a hunch that they
were onto something big but they still weren't quite sure how big. So
they decided to find an accountant and give a demonstration of their
freshly created software gizmo.
The accountant watched passively as the authors entered a large table
of data into the computer. Since computer mice hadn't been invented
yet, everything was entered using esoteric keyboard commands and viewed
on a tiny monochrome monitor. Certainly the accountant was thinking
that a pencil and large sheet of graph paper would be far easier than
having to type everything into that clunky metal box.
Then, once all the data was entered, the authors went back and modified
a value at the top of the table. The changes automatically propagated
down all the appropriate rows and columns, updating dozens of cascading
sums and nested products almost instantly. The accountant blinked in
disbelief.
"How'd you do that?" he asked incredulously. The authors changed the
value back and everything automatically corrected itself, returning to
their original values. Then they changed a different column and the
spreadsheet once again updated itself.
The accountant started to stammer and shake. What the computer had
done in a split second was normally a tedious process of erasing,
manipulating and rewriting a series of sequential values, hoping to not
make any mistakes in the process. The computer had done it instantly
and flawlessly.
"That's what I do all day!" exclaimed the accountant. It was instant
love. The accountant realized immediately what a huge time saver this
new invention would be. Indeed, VisiCalc went on to become the first
"killer app", an application so compelling that people would buy a
computer just to use that one application. In this case, VisiCalc was
a major contributor to the success of the Apple II, the computer that
rocketed Steve Jobs and Steve Wozniak to eternal fame.
Today, anybody with a table of data to manipulate probably uses
Microsoft Excel. I used Excel to make a fancy spreadsheet showing
"Potential Income from Kona Coffee Farming." It shows numbers for a
hypothetical 5 acre Kona coffee
farm. At 13 acres, Kona Earth is larger than most other Kona coffee
farms. The spreadsheet works fine either way since the numbers are all
adjustable. I have seen similar spreadsheets made by other farmers and
even a very detailed one made by a university economics professor. Of
course mine is better than any of them.
When working with a large spreadsheet it's easy to get too busy adding
up all the numbers and miss the forest for the trees. I tried to avoid
this by concentrating less on the details of various expenses and more
on the big picture. The coffee farming expenses are lumped into a few
simple slots while the various "value added" expenses (such as taking
cherry to roasted coffee) are spread across several different
sections: cherry, parchment, green, roasted, mixed. A quick view of
the spreadsheet makes it painfully obvious that it's nearly impossible
to make a profit from farming alone.
The line that looks the most enticing is the potential income from
selling all the coffee at retail prices, directly to the consumer.
While this is a worthy goal, few farms can achieve it. Most farms,
including Kona Earth, sell a mixture of retail, wholesale and
unprocessed coffee cherry. That's why I added the last section in the
spreadsheet that shows income when selling coffee at all the various
stages. This is an important section that I've never seen in any other
Kona coffee farming spreadsheet.
Another item that is often omitted is the cost of expanding. When I
first considered buying a Kona coffee farm, I did some quick math on
potential income. I got to that bottom line, showing the potential
income from all retail sales, and was pretty happy. Then I did one
other quick calculation: the amount of coffee I'd have to sell every
day in order to achieve that income. The answer I got was 20 pounds
per day. At that level, I wouldn't have any time to farm because I'd
spend all my time bagging and selling coffee. It was an important
figure that I knew my spreadsheet had to have.
There's another common omission that has always bothered me in other
spreadsheets and that's the equivalent cherry price. For example, I
recently saw someone selling "Kona" green beans on EBay for $6 per
pound. That is a ridiculously low price. Consulting my spreadsheet, I
can easily see that they are actually losing $1.50 per pound compared
to the equivalent cherry price. They would be better off selling the
raw coffee cherry to the local mill rather than spending all the time
and money required to turn it into green beans. That EBay seller is
either really bad at math or they're not selling fresh 100% Kona
coffee. Assuming they're not liars, then maybe they should ask me for
a copy of my spreadsheet. I'd be happy to help them with the basics.
|
