Building a Risk Management Plan

Print out this page to assess your management skills and financial strength. The results may shock you.

1. Mark if you’ve done the following “a lot,” “some,” or “not much.”
Give yourself 1 point for each time you answer “a lot,” 2 points for each “some,” and 3 points for each “not much.”
___ Diversified production by raising both crops and livestock.
___ Diversified production by raising a crop not widely grown in your area.
___ Planted varieties with different maturity dates.
___ Hired fieldwork done rather than purchase a piece of equipment.
___ Hired fieldwork done to improve timeliness of crop operations.
___ Used irrigation to reduce losses from drought.
___ Contracted inputs ahead of when you needed them to lock in a good price or made sure you’d have access to them.
___ Bought crop insurance.
___ Maintained a larger open line of credit than you need just in case.
___ Participated in the government farm program.
___ Leased equipment rather than purchased it.
___ Rented equipment rather than purchased it.
___ Shared production expenses or work with landlord.
___ Negotiated multi-year leases of farmland.
___ Used crop share leases.
___ Refinanced debt to take advantage of lower interest rates.

2. Subtract 1 point for each of the following techniques you use:
___ Sensitivity analysis
___ Accrual accounting
___ Cash flow plan
___ Accountant
___ Computerized financial records
___ Financial ratios
___ Financial consultant or farm business association

3. How many individual sales of your major crop will you make in a year?
Subtract the number of points indicated.
Points/Individual sales
1 = One
2 = Two to five
3 = Six to 10
4 = 11 to 15
5 = More than 15

4. What percentage of your crops are forward priced before harvest or before reaching market weight?
Subtract the number of points indicated for both crops and livestock, giving yourself two separate scores.
___ Crops
___ Livestock

Points/% forward priced
1 = None
2 = 1% to 24%
3 = 25% to 49%
4 = 50% to 75%
5 = More than 75%

5. If you raise livestock, what percent are raised or sold through a contract or marketing arrangement with a packer or other company?
Subtract the number of points indicated for both hogs and cattle, giving yourself two separate scores.
___ Hogs
___ Cattle

Points/% using contract
1 = None
2 = 1% to 24%
3 = 25% to 49%
4 = 50% to 75%
5 = More than 75%

6. Which of the following best describes your approach to planning?
Add the number of points indicated.
Points/Approach
1 = Have a detailed, written plan for the next five years
2 = Put a few ideas on paper, but nothing comprehensive
3 = Have a general idea, but nothing in writing
4 = Have not doing any planning that far into future

______ TOTAL POINTS

SCORING SYSTEM
35 or more = *
25 to 34 = **
19 to 24 = ***
18 or less = ****

___ What letter grade (A, B, C, D, or F) would you give to judge the financial strength of your farm?
Put the number of points indicated below, “A” being the best.
A = 5
B = 4
C = 3
D = 2
F = 1

___ How likely is it that your farm could survive a year of bad yields or bad prices — "very likely," "somewhat likely," or "very unlikely?"
Put -1 point if you answered "very unlikely." Otherwise put zero.

___ How much would the following affect your farm? Answer "a lot," "some," or "not much."
Put -1 point for each time you answer "a lot." Otherwise put zero.
___ a 3 percentange point rise in interest rates
___ a 5% drop in revenues
___ a 5% increase in expenses

___ Do you worry about whether you"ll be able to pay back the debt you own?
If yes, put -1 point. Otherwise put zero.

___ Do you always pay off the balance on your credit cards on time to avoid paying a finance charge on the outstanding balance?
If no, put minus -1. Otherwise put zero.

___ Compared to other farms, is your farm successful?
If no, put minus -1 point. Otherwise put zero.

___ Over the next five years, do you expect your earnings to increase?
If no, put minus -1 point. Otherwise put zero.

___ What were your farm’s total profits after expenses last year?
Put the number of points indicated below.
1 = Lost money
2 = Less than $10,000
3 = $10,000 to $24,999
4 = $25,000 to $49,999
5 = $50,000 to $99,999
6 = $100,000 or more

___ What is your farm’s debt-to-asset ratio? That is, your total debt divided by your total assets? ____%
Subtract the number of points indicated below.
1 = Zero (no debt)
2 = 1 to 10%
3 = 11 to 40%
4 = 40 to 60%
5 = More than 60%

______ TOTAL POINTS

SCORING SYSTEM
Zero or less = *
One to three = **
Four to six = ***
Seven or more = ****

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