2017 Fall Farm Outlook

Page 40 Oct. 25, 2017 2017 Logan County Fall Farm Outlook Magazine LINCOLN DAILY NEWS Your business plan needs to tie together your risk management plan, your marketing plan and all the details about your operation, and show a predictable outcome. It needs to predict what will happen over the next five years, anticipate various risks and detail in advance what you plan to do about them. These three elements need to be written documents for two reasons: 1) They need to be your written word that this is the path you intend to follow (a guarantee of sorts) and 2) They need to communicate your plan in detail to both you and your farm lender. These documents, depending on your plan, intensity, and clarity - will earn you trust. There are templates and examples of these documents are available on the internet. The second area of focus is to keep excellent bookkeeping and be able to present your lender with a periodic accrual income statement of earnings. It is necessary to keep accrual books rather than cash books because you have an inventory that you manage. Your accrual statement of earnings needs to detail all the cash transactions that you have made, plus detail all your accounts payable, all the loans you manage, all the income you have (cash) and are owed, and all the inventory you have to sell and its value. Your statement of earnings needs to be a concise and accurate snapshot of your operation at a given moment. Your lender acutely understands the condition of your entire enterprise by the information you present in your accrual income statement of earnings, and will be able to recognize any deviation from reality in this report with eagle eyes. The third area of focus is another area of bookkeeping which involves asset and debt management. There are five elements in this area. The first two elements, current ratio debt to asset ratio, and leverage ratio, convey to your lender how much skin you have in the game and your balance of owned value to owed debt. ■ Debt to asset ratio, the target in all lending is 80% or less; meaning that the lender is very unlikely to lend on the purchase of land, equipment, buildings or inputs if you cannot come up with a sizable investment in those items. Continued ►►