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The Capacity Factor in Farm Business Management
This article was printed in the May/June 2010 issue of the Organic Broadcaster, published by the Midwest Organic and Sustainable Education Service.
One of the most challenging and yet most rewarding areas of farm financial management is the analysis of profitability and financial performance, also known as ‘capacity’. This is where the rubber meets the road, so to speak, in relation to converting resources such as time, labor, capital, and management decisions into a return on investment. In this article we will explore the third ‘C’ of the ‘Five C’s of Credit’- capacity. Capacity is probably the most important area of financial management. While agricultural lenders typically analyze numerous ratios and indicators related to capacity, based upon the nature of the farming operation and the credit request at hand, this discussion will focus on capacity decisions as it relates to farm business management from a practical perspective.
There are plenty of reasons for a financial manager to be concerned with profitability and overall financial capacity. Ample financial capacity can provide a farm business with many options for future sustainability, growth, diversification, specialization, and retirement or transfer to the next generation. A capacity analysis helps one better understand the current financial condition of the farm business and aids in the development of a roadmap for future success.
Amber Bennett is Vice President- Farm & Home at Badgerland Financial, serving farmers and rural communities in 33 counties of southern Wisconsin. Amber works with a team of lenders who specialize in serving the unique, financial needs of full-time farmers, part-time farmers, and rural homeowners. She grew up on a dairy and livestock farm in southwestern Wisconsin and has 18 years of agricultural lending experience. She received a Bachelor of Science degree in agricultural economics from U.W. Platteville and an MBA from U.W. Whitewater. For more information, check out www.badgerlandfinancial.com.Return to TOP