self-assessment: overview decide that area of operation that need attention develop a plan and a...
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Self-Assessment: Overview
• Decide that area of operation that need attention
• Develop a plan and a qualitative self-assessment of those areas
Self-Assessment
• Managing For the Right Risks in Agriculture
• Risk management: choosing among alternatives to reduce the effects of risk.– Evaluating the tradeoff between
changes in risk, expected returns, entrepreneurial freedom and effects on family and labor.
Self-AssessmentSelf Assessment
• Managing for the Right Risks in Agriculture: Business Plan
• Must identify and establish goals• Negotiate and compromise to
determine the most important goals, start with family/business partner goals and then develop business goals so family/partner goals are satisfied.
• Must attach costs to goals• Develop business plan guided by goals• Always manage with goals and
business plant in mind
Self-Assessment: Review
• When creating a business plan, which of the following should you do to start the process?– A. Must identify and establish goals for
your business.
– B. Negotiate and compromise to determine the most
– C. Must attach costs to goals
– D. All of the above.
Self-AssessmentSelf Assessment: Managing for the Right Risks in Agriculture: Production Risk
• Production risk- anything that affects crop yields or livestock performance
• Many of these things are out of our control, but measures can be taken to lower the income variability associated with production risks
• Stable income can make the difference between resilience or business failure
• Two basic strategies to reduce income variability:– Enterprise diversification
– Crop or revenue insurance
Self-Assessment: Review
• What are the basic strategies to try to reduce income variability in agricultural businesses? – A. Enterprise diversification
– B. Livestock performance
– C. Crop yields
– D. Crop or revenue insurance.
Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Production Risk
• If choose to make a change in operation, consider the changes:– Do you have the time, labor, capital, and
equipment?
– Who will buy your new product?
– How will you market new product?
• Expect a learning curve and less performance the first year in your plan
Self-Assessment: Managing for the Right Risks in Agriculture: Production Risk
• Do you know your cost of production for each enterprise? ___No ___Yes
• Are you a high or low cost producer compared to benchmark for your area? ___High___Low
• Have you evaluated the risk of current or new enterprises? ___No___Yes
• Have you identified resources needed for new enterprises? ___No___Yes
Self Assessment: Risk and Resilience in Agriculture: Marketing Risk
• Knowing types of price variation for your product and watching market throughout the year can make you a better marketer
• Compare and contrast price with futures price, using basis (basis= cash price- futures price)
• Agricultural futures and options-– Can reduce risk against disastrous
price moves.– With options can still take advantage of
favorable price moves without margin calls
Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Marketing Risk
• Develop a marketing plan– Set your annual marketing goals
– Use family and business goals as a guide
– Know cost of production and break-even price
• Determine your “marketing toolbox”– Sell on a cash market
– Basis
– Futures hedge
– Option
– Minimum price or forward contract
Self-AssessmentSelf Assessment: Marketing Risk
Does your marketing plan or program:
• Involve the necessary people?
• Identify/address your financial risk?
• Minimize emotion in marketing decisions?
• Identify who is responsible for each item?
• Identify where prices headed and how that will affect your business?
• Provide for review and flexibility?
Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Financial Risk
• Know interest rates of other lenders and load providers
• Shop around and visit with different lenders, particularly for small loan requirements
• This type of information can be used for leverage when meeting with your preferred lender
Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Financial Risk
• Prepare the balance sheet– Assets, liabilities, net worth or owner
equity
• Prepare income statement/profit statement
• Prepare cash flow statement– Summary of cash receipts (inflows) and
expenses (outflows)
• Do a financial ratio analysis
Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Financial Risk
• Have you calculated several key financial ratios?
• Use several years and watch trend for potential problems
• Liquidity- increasing or decreasing?
• Equity- increasing or decreasing?
• Can you meet your debt payments according to your cash flow?
Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Legal Risk
• Agricultural contracts:– Know basic rights and duties under
basic contract law
• Does your state require any special provisions for the type of contract you are using?
Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Legal Risk
Environmental laws affecting agriculture:
• Clean Water Act– CAFO, AFO, others
• State environmental laws– State water quality, permitting systems, etc.
• Producers should do environmental audit of their operations, learn about laws, take advantage of exemptions or safe harbors
Self-AssessmentSelf Assessment: Review
• Environmental laws are rapidly becoming one of the more important limiting factors for which of the following? Select all that apply.– A. Changing cropping systems
– B. Opening new acres to farming
– C. Managing crops
– D. Establishing livestock operations
Self-AssessmentSelf AssessmentRisk and Resilience in Agriculture: Legal Risk
• Estate planning– Only one out of three operations
successfully transferred to the next generation
– Develop a plan
– Discuss goals of the plan with the family
– Know the value of the estate for tax reasons
– Consult with experts- lawyer, accountant
Self-AssessmentSelf AssessmentRisk and Resilience in Agriculture: Legal Risk
• Is the contract written or oral?– Oral- Risky
– Written- Resilient
• Are terms spelled out in detail?– Purpose, payment terms, conflict
resolution and special provisions
• Is the contract a “general contract” –Risky?
• Has attorney looked at contract ?– No-Risky
• Investigated for any special state provisions.
Self-AssessmentSelf AssessmentRisk and Resilience in Agriculture: Legal Risk
• Have you attended programs and gathered information about environmental regulations that affect agriculture in your state?
• Have you done an environmental audit to determine if your operation is in conflict with current laws?
• Have you developed a plan to reduce possible environmental hazards?
Self-AssessmentSelf AssessmentRisk and Resilience in Agriculture: Legal Risk
• Have you developed goals for transferring operation?
• Have you discussed goals with your family?
• Do you have an estate plan?
• Have you discussed your estate plan with an attorney or other estate specialists?
Self-AssessmentSelf Assessment Risk and Resilience in Agriculture: Human Risk
• Over half of farm and ranch families have intergenerational conflicts
• Economic goals, business operation, and estate transfers can be blocked by unresolved family issues– “If our operation was like a business,
we could fire one or two of our family members, but we cant.”
Self-AssessmentSelf AssessmentRisk and Resilience in Agriculture: Human Risk
• Build skills in interpersonal communications, conflict resolution, problem-solving, decision-making and goal setting.
• Potential strategies:– Family meetings
• Regularly scheduled
• Strive for consensus
• Solve one problem at a time
– Stress management techniques
– If problems too complex to solve by yourself, seek professional help
– Recognize the influence that “personality” has on risk management decisions
• Know your own personality and management style
Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Human Risk
Are you an at-risk family?
• Family meetings chaotic, disruptive, no consensus
• Family members interrupt each other or withdraw from family discussions
• Depression and anger common among family members
• Low trust levels, high conflict or violence
Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Putting It All Together
• Strategic planning is important
• Strategic planning process should include:– Setting goals
– Mission statement
– Estimate cost of goals
– Incorporate risk management goals into strategic plan
Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Putting It All Together
• Incorporate risk management into daily operation of business and management decisions
• Self Assessment and action items in risk management
• Redo assessment and action plan for risk management at least annually.