What is in this article?:
- Financial benchmark tool provides perspective on farm operation
- Benchmark yourself
Aaron Lee, Salem, Ind., farmer, has a customized form showing cash flow, expected cash draws, grain inventories, operating loan status and the weekly weather forecast one month and six months out. He and his family can also determine cash flow by field our cash flows, rents, and keep better records on crop inputs.
“You have to be ‘all in’ for financial benchmarking to work, he says. “Benchmarking with other farmers is relationship-driven. It takes time to build trust and share all of your data, but it’s well worth the effort."
Here is a sample farm dashboard with key financial ratios that indicate your financial health. The categories are listed as the Farm Financial Standards Council recommends; liquidity, solvency, profitability, repayment capacity and efficiency.
While the categories may be of equal importance to an operation, Dale Nordquist, University of Minnesota Center for Farm Financial Management associate director, suggests the most important measures within each category may be as follows:
- Liquidity –working capital to gross revenue
- Solvency –debt to assets ratio
- Profitability –rate of return on assets
- Repayment capacity –term debt coverage ratio
- Efficiency –operating expense ratio
The "average" column reflects 2,939 farms' average values. Users who view Minnesota data, see data from farmers who participate in MnSCU Farm Business Management and the Southwest Minnesota Farm Business Management Association. Individual farms work with representatives to complete detailed financial analyses at the close of each year. The analyses are compiled into the FINBIN database.
At the whole-farm ratio level, this data can be used with care by farmers in other states, although Nordquist cautions farmers will see some regional differences in certain years.
To complete a dashboard online, go to http://www.finbin.umn.edu/WholeFarmBenchmarking/default.aspx. The site has a handy option for those who don't know their ratios, where it will calculate them for you.