Don’t lie when it comes to your farm’s financials
Don't lie when it comes to your farm's financials Farm Progress
sdgtalks
Know your numbers
Farmers often maintain multiple sets of books, using different accounting methods for different purposes. However, it is crucial to have a clear understanding of your farm’s financial metrics and historical trends. This is especially important in the current agricultural climate, where the price of corn has decreased and input costs remain high. By analyzing your balance sheet and income statements, you can gain valuable insights into your farm’s financial health and make informed decisions.
How to manage this
- Understand the industry and its cycles: Familiarize yourself with the patterns and trends in the agricultural sector. This knowledge will help you mitigate risks and identify new opportunities.
- Use accurate asset valuations: Instead of relying on conservative estimates, consider hiring appraisals to determine the true market value of your assets, such as farmland, buildings, and equipment.
- Assess your risk profile: Utilize key financial metrics to evaluate the risk associated with your operation. Consult with experts who can provide guidance and help you interpret these ratios accurately.
- Analyze the results: Identify areas for improvement and stay updated on future cycles and trends in agriculture. Take advantage of financial benchmarking, peer groups, and coaching services offered by consulting companies.
What’s your risk tolerance?
Solvency and debt-to-asset trends are essential indicators of your farm’s financial stability. Another measure is the equity-to-assets ratio, which represents the share of the business that you own. A strong ratio is typically above 75%, while a weak ratio is below 40%. It is important to use accurate asset valuations when calculating these ratios, as conservative estimates may provide an inaccurate picture of your financial position.
If you are highly leveraged and own less than 40% of your business, consider strategies to increase profitability, generate additional cash flow, pay down debt, or liquidate non-essential assets. On the other hand, if you have low leverage and own 80% to 90% of your business, you can reinvest equity into new opportunities while maintaining a strong financial position.
Additional Resources:
- Farm Financial Scorecard – A tool provided by the University of Minnesota to assess your farm’s financial health.
- Solvency trends for Illinois grain farms – A study analyzing solvency and debt-to-asset trends in the grain farming industry.
Remember, as management expert Peter Drucker once said, “You can’t manage what you can’t measure.” With higher interest rates and challenging profitability, it is crucial to prioritize working capital and stay informed about your farm’s financial performance.
SDGs, Targets, and Indicators
1. Which SDGs are addressed or connected to the issues highlighted in the article?
- SDG 1: No Poverty – The article discusses the financial challenges faced by farmers and the need to manage risks and improve profitability.
- SDG 2: Zero Hunger – While not explicitly mentioned, the article’s focus on agriculture and farming is connected to the goal of achieving food security and promoting sustainable agriculture.
- SDG 8: Decent Work and Economic Growth – The article highlights the need for farmers to understand their farm’s financial metrics and historical trends to navigate economic downturns and explore new opportunities.
- SDG 12: Responsible Consumption and Production – The article emphasizes the importance of accurate financial reporting and true market valuations of assets to make informed decisions and manage risks.
2. What specific targets under those SDGs can be identified based on the article’s content?
- Target 1.4: By 2030, ensure that all men and women, in particular, the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership, and control over land and other forms of property. – The article discusses the importance of understanding asset valuations and ownership percentages to assess one’s financial position.
- Target 2.3: By 2030, double the agricultural productivity and incomes of small-scale food producers, in particular, women, indigenous peoples, family farmers, pastoralists, and fishers. – Although not directly mentioned, the article’s focus on improving profitability and exploring new opportunities aligns with this target.
- Target 8.3: Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity, and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services. – The article emphasizes the need for farmers to understand their farm’s financial metrics and use financial tools and consulting services to improve their business.
- Target 12.3: By 2030, halve per capita global food waste at the retail and consumer levels and reduce food losses along production and supply chains, including post-harvest losses. – Although not directly mentioned, the article’s focus on managing risks and improving profitability can contribute to reducing food losses and waste in the agricultural sector.
3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?
- Equity-to-assets ratio – The article mentions this ratio as a measure of what share of the business a farmer owns and suggests using true market valuations of assets to obtain an accurate picture.
- Financial metrics – The article emphasizes the importance of understanding key financial metrics and historical trends from balance sheets and income statements to assess one’s farm’s financial health.
- Risk profile assessment – The article suggests assessing the risk profile of farm operations using key financial metrics and consulting with experts who can provide insights into insolvency risks.
SDGs, Targets, and Indicators Table
| SDGs | Targets | Indicators |
|---|---|---|
| SDG 1: No Poverty | Target 1.4: By 2030, ensure that all men and women, in particular, the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership, and control over land and other forms of property. | Equity-to-assets ratio |
| SDG 2: Zero Hunger | Target 2.3: By 2030, double the agricultural productivity and incomes of small-scale food producers, in particular, women, indigenous peoples, family farmers, pastoralists, and fishers. | Financial metrics |
| SDG 8: Decent Work and Economic Growth | Target 8.3: Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity, and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services. | Risk profile assessment |
| SDG 12: Responsible Consumption and Production | Target 12.3: By 2030, halve per capita global food waste at the retail and consumer levels and reduce food losses along production and supply chains, including post-harvest losses. | N/A (implied) |
Copyright: Dive into this article, curated with care by SDG Investors Inc. Our advanced AI technology searches through vast amounts of data to spotlight how we are all moving forward with the Sustainable Development Goals. While we own the rights to this content, we invite you to share it to help spread knowledge and spark action on the SDGs.
Fuente: farmprogress.com
Join us, as fellow seekers of change, on a transformative journey at https://sdgtalks.ai/welcome, where you can become a member and actively contribute to shaping a brighter future.
