A32-Lancaster Farming, Saturday, January 4,1986
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l . i Dairy
I Business
*, Newton Bair
Watch out for red flags
Maybe I’d better define right
from the start what I mean by
“Red Flags”. They are the little
signals that flash across the mind
to caution us when something
serious is happening.
Lots of examples can be cited,
for they are plastered all over the
headlines and in the five, six and
seven o’clock news.
But the most important flags
may be those very private ones
that don’t hit the news. They often
tend to be hidden, like thorns
among the roses.
You will soon receive your year
end summary for the 1985 business
year from your accountant. Learn
to look at it very critically, and if
possible make comparisons with
the average figures for the State or
county.
Your Accountant will be glad to
point out any weaknesses that will
raise a red flag. If you don’t have
an accountant to analyze the farm
business, start right now to
assemble your data for the 1985
Income Taxes.
Clean out the desk, get the ac
count book up to date, and
categorize all expenses and in
come. And resolve to do better next
year.
Now about those flags, if you do
not already see them waving fast
and furious. The first one I look at
is the Debt-to-asset ratio. Divide
MUELLER
I ~~ i
Dairy Farm Equipment
The HiPerForm Milk Cooling System
Mueller Fre-Heaters
The Refrigerated Receiver
RUFUS BRUBAKER REFRIGERATION
Service Center
R. 0.3.
Dry Wells Rd.
Quarryville, PA
717-786-1617
Used 400, 500 & 1000 Gallon
Coolers Available!
Call For Other Tank Sizes And
Prices!
your total debts by your total
assets, (value of land, buildings,
depreciable machinery, stock, and
inventory).
Most farm economists and
bankers agree that a Debt: Asset
ratio above .4, which is the same as
saying your D/A is 40 percent,
raises a flag. For example, your
farm debts total $lOO,OOO and the
total value of all your assets is
$250,000, you ratio is 40 percent. If
your total debt is $150,000, your
D/A becomes .6, or 60 percent.
You may be technically solvent
if the D/A is exactly 1.0, or 100
percent! That simply means that
if liquidated, the value of assets
would pay off the debts, everything
even. But you and your family
would be naked paupers, destitute,
and probably on welfare. Very
difficult to borrow your way out of.
Another red flag is Net Worth.
That is the difference between the
total debts and total asset value.
Any young farmer just starting out
in business, will have a fairly low
net worth, until he has several
successful years behind him.
The actual net worth of a farm
business should show some
growth. But the last few years
have slowed down the actual
growth of Net Worth, because of
lower land values, building and
machinery depreciation, and
softer cattle prices.
With Effi
th
614 Penryn Rd.
MANHEIM, PA
717-665-3525
ST. LOUIS - Make way for soybean checkoff investment in the
Soybean Aid! U.S. soybean far- Soybean Association, U.S. farmers
mers are pitching in to help end help promote use of soy protein to
world hunger. Through their fortify foods in developing nations.
“Because of Soybean
Association programs, fewer
children are going to bed hungry
each night,” says Gil Harrison.
“And at the same time, U.S.
soybean farmers are gaining
markets.”
Harrison is the American
Soybean Association’s market
development division manager for
Latin America. He and other
Soybean Association staff and
consultants implement programs
in Latin America that help U.S.
farmers expand soybean markets.
Harrison says the bulk of
Soybean Association project
funding supports potential
markets for soybean meal and oil.
But some dollars do go to promote
soy protein and play a small but
crucial part in expanding soybean
markets.
“In the Dominican Republic, 400
children will soon participate in a
special six-month nutrition
program to document the benefits
of soy protein in the diet,” says
Harrison.
Earlier this month, the S.S.
Unicom Express arrived at the
port of Santo Domingo carrying
two tons of soy protein products.
The products were donated by the
The flag really goes up when I
see a farmer’s Net Worth eroding
away every year, for several years
in a row. It can disappear
altogether if that keeps on another
year or two.
But the biggest red flag of all is
when a farm business must borrow
money to finance the previous
years expenses, several years in a
row. It is the one that waves in
front of your eyes violently, so
can’t be ignored.
It is saying that there simply is
not enough cash flow to cover the
cost of operating the business and
feed and clothe the family.
Significant adjustments MUST be
made, and right away.
A bad year will occasionally hit
every farm. Re-financing old loans
or a discrete new loan should not
be considered a red flag, if other
adjustments are made, and
recovery is normal. But if
borrowing becomes chronic, and
no adjustments are made to either
reduce expenses or increase in
come, the flag takes on a cfimson
glow.
Start early this year to pay close
attention to the indicators in your
business. Many things will affect
the Dairy business this year. Some
are beyond our control, but many
are still within our grasp to make
work.
Work closely with financial
advisors, and don’t be afraid to
discuss your problems with those
you trust. And don’t hesitate to
make adjustments in your
business, especially when old
habits are costing too much and
not returning enough.
Learning to recognize and react
to the RED FLAGS can save your
business and your family’s
welfare.
Northern
Service Center
RD1.80x199
Myerstown, Pa.
717-933-4711
Soybean farmers helping
to ease world hunger
r ATTENTION TOBACCO
FARMERS!
Please contact us immediately. Those of
you who have contracted your Type 609
tobacco with us - we realize the prizes for
609 tobacco have gone up. We are prepared
to re-negotiate our contracts to market
prices. Please call.
We would like to thank you for your
business in the past and look forward to the
coming year.
Please keep supporting the Pennsylvania
Tobacco auction - it’s working because of
you.
IDEAL LEAF
TOBACCO CO.
| Joe Irving - 717-295-9346
Soy Protein Council for use in
Soybean Association-sponsored
child nutrition programs.
Under the direction of Soybean
Association nutrition consultant
Dr. Haydee Rondon - a doctor at
the Robert Reid Memorial
Children’s Hospital in the
Dominican Republic - the soy
protein will be incorporated into
spaghetti, sausages, and bread.
Nearly 400 children at the hospital,
a government day care center and
an orphanage will be the daily
beneficiaries of these fortified
foods.
“Children who receive this
additional protein should grow
healthier and stronger quicker.
And that’s what we want to show
the Dominican government,” says
Harrison.
“Worldwide, a lot of people can’t
afford meat, but they still need
protein. We’re showing people that
soy can do the trick. If it is used
correctly in foods and beverages, it
is quite palatable,” says Harrison.
“There’s a long-term Benefit to
this program. Through the Soy
Protein Council, our cooperators in
this project - Cargill, Archer
Daniels Midland, Central Soya,
A.E. Staley and Grain Processing
Corp. - will take what we leam in
the Dominican Republic to the
protein-starved countries of Africa
and Asia.”
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