Strategic Business Planning for Commercial Producers Assessing Financial Performance: How Am I Doing?

Strategic Business Planning for Commercial Producers Topics Data required Calculation worksheet Interpretation Financial assessment worksheets

Strategic Business Planning for Commercial Producers Data required Balance sheets –Beginning of the accounting period –Ending of the accounting period Schedule F and Form 4797 from federal tax return Miscellaneous information

Strategic Business Planning for Commercial Producers Worksheet 1- Schedule F Data

Strategic Business Planning for Commercial Producers Worksheet 1- Balance Sheet Data

Strategic Business Planning for Commercial Producers Worksheet 1- Miscellaneous Data

Strategic Business Planning for Commercial Producers Worksheet 1- Miscellaneous Data

Strategic Business Planning for Commercial Producers Worksheet 1- Case Problem Data

Strategic Business Planning for Commercial Producers Worksheet 1 - Net Farm Income Calculations

Strategic Business Planning for Commercial Producers Net Farm Income Calculations for Case Problem

Strategic Business Planning for Commercial Producers Worksheet 2

Strategic Business Planning for Commercial Producers Worksheet 2 - Case Problem

Strategic Business Planning for Commercial Producers Diagnosis Assessment in four areas –Profitability –Liquidity –Solvency –Financial efficiency

Strategic Business Planning for Commercial Producers Indicators of Financial Strength Values larger than benchmark –ROA –ROE –Operating profit margin –Asset turnover ratio –Revenue per full-time worker –Net farm income ratio

Strategic Business Planning for Commercial Producers Indicators of Financial Strength Values smaller than benchmark –Debt-to-asset ratio –Operating expense ratio –Depreciation expense ratio –Interest expense ratio

Strategic Business Planning for Commercial Producers Worksheet 2 - Assessing Financial Performance

Strategic Business Planning for Commercial Producers Source of problems Scale Employment Efficiency Debt structure

Strategic Business Planning for Commercial Producers Diagnostic tree Not OK Diagnostic factors EfficiencyScaleDebt structure Courses of action OK Not OK OK Not OK …………. Source:Financial Troubleshooting

Strategic Business Planning for Commercial Producers Courses of action to improve efficiency Increase analysis of production records looking for clues that will lead to improved efficiency Use advisory services to help focus on productivity and thruput Work at improving production skills Improve marketing skill and performance Devote more time to management

Strategic Business Planning for Commercial Producers Courses of action to improve scale Examine whether management ability is sufficient to handle business of the current size or an expansion Use fixed resources fully by adding enterprises and/or custom work Expand existing enterprises with low- capital requirements Merge with another farming unit

Strategic Business Planning for Commercial Producers Courses of action to improve employment Increase off-farm employment Eliminate hired family employees Add labor intensive enterprises with low capital requirements (increase the scale) Reduce family withdrawals to a level that is consistent with efficiency or part-time employment

Strategic Business Planning for Commercial Producers Courses of action to improve debt structure Restructure debt Sell unproductive assets to reduce debt Reduce debt through write-off Scale back farm to allow significant increases in off-farm employment Don’t own what you can control through leases Evaluate the rate of return expected from capital investments and compare to interest rate

Strategic Business Planning for Commercial Producers Summary Utilize existing data Identify appropriate benchmarks Assess efficiency, scale, employment, and debt structure to identify actions that will improve performance

Strategic Business Planning for Commercial Producers