“How does my business stack up against my neighbors’?”
That’s a very common question these days as agriculture heads into the 21st Century. Many exciting opportunities exist in the industry; however, there are just as many challenges and, over time, they will separate the leaders and the followers. As technology, global market competitiveness, government policy, consumer preferences and other factors impact 21st Century agriculture, farm managers will have to make decisions within a strategic risk management context.
The Strategic Risk Management Fiscal Fitness Checkup allows you to analyze 12 critical areas in your business that pertain to short-term and long-term risk management:
- Working Capital (Liquidity)
- Net Income/Partner
- Natural Resource Base
- Management Assessment
- Saving For Your Future
- Transition Planning
- Technology Assessment
- Environmental Assessment
As you work through the sections of this management overview, be candid with yourself. That’s the only way to truly measure the capabilities of your business to succeed where others might fail. If you wish, you could invite members of your advisory team – your accountant, lawyer, lender, financial planner or farm management advisors – to participate.
Note: Some categories can be measured at a specific point in time; however, some of the quantitative aspects in the financials may require a three - to five-year average because of inconsistencies dues to weather, production and operating cycles, tax strategies, and other abnormalities. You will need the following items to properly complete this farm assessment:
- Balance Sheet (as current as possible)
- Accrual Income Statements (if cash basis, then 3- to 5-year averages).
Finally, the benchmarks are based on industry data and my quarter century of experience in farm management and working with farm managers. Keep in mind that a weakness in one area may be overcome by strengths in others. Variation also occurs among industries. However, the intent of the fiscal fitness checkup is to get you in the ballpark, not to home plate, and to challenge your business thinking.
The overall objective of the Fiscal Fitness Checkup is to help you establish strategic priorities in your business, and to assist in decision-making and goal-setting. The ratios and guidelines can help to identify symptoms of underlying problems in the business which, in turn, may be used to facilitate outside assistance and services to solve the problems. Our goal is to make decisions more objectively rather than have to rely heavily on intuition or be influenced by emotions.