The Farm CPA
Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
Sustainability Test - Part 1
Nov 14, 2011
A reader gave me a 10 part questionaire regarding how sustainable your business is. This questionaire applies as much to farming as to any other business. During this week, I will list the questions here with my comments. If you can get a true response on at least 7 questions, I would say your farm is in very good shape, 4-7 to is probably around average and below 4, you will need some work.
There are all true/false questions.
1. Our farm's revenue (top line) and net income (bottom line) are predictable and repeatable as demonstrated by our annual budgeting process.
- Notice the question references your budgeting process versus your income being predictable and repeatable. We know that grain prices are rarely predictable, but do you use your budgeting process to come up with your expected gross income on the top line and net income on the bottom line.
2. Our company has a sense of direction demonstrated by its formal (written) business plan that looks ahead at least two years.
- The key to this question is do you have a WRITTEN business plan and does it go out at least two years. Business plans do not need to be 25 pages in writing. They can simply be a listing your goals for the farm and estimates of gross income and net income, but they need to be in WRITING and they need to be REVIEWED and USED.
3. Our company has a disaster recovery plan in the event of fire, windstorm, flood, or loss of power that allows it to resume operations within a day of the event.
- Besides crop insurance, what is your plan in case one of these events occur. Would you be up and running the next day?
Tomorrow, we will post the next couple of sustainability questions.