Enterprise Budgets (Crop Budgets): Projects costs and returns over a production period including direct costs (seed, chemicals, fertilizer, crop insurance, fuel, repairs, hired labor, irrigation, etc.), indirect costs (marketing overhead, depreciation, investment and land taxes), returns to management and labor; and yield records including both quantity and quality.
Resources Flow Budgets: Similar to cash flow in concept, each limiting resource should have a flow budget that reflects sources and uses over time. Examples of limited resources include labor, machinery (by function—seeding, cultivating harvesting, etc.).
Income Statement: Reports the amount of profit the business generates on an annual basis. An accrual statement provides a better measure of the firm’s performance because it considers changes in inventories, rather than cash transactions.
Balance Sheet: Summarizes the values of the firm’s owned assets and liabilities. The difference between the two totals is the owner’s equity (net worth).
Cash Flow Budget: Reports the sources and uses of the business’ cash resources reflecting both the change in cash, and the timing of when the cash was spent or received.
“Sweet Sixteen” Measures: Liquidity (current ratio, working capital) Solvency (debt/asset ratio, equity/asset ratio, leverage ratio) Profitability (rate of return on farm assets, rate of return on farm equity, net farm income) Financial Efficiency (asset turnover ratio, operating profit margin, operating expense ratio, depreciation expense ratio, interest expense ratio, net farm income from operations ratio) Repayment Capacity (term debt and capital lease coverage ratio, capital replacement and term debt repayment margin).
Family Living: A complete listing of family living expenses to include sources of off-farm income and cash withdrawals from the farm to meet living expenses. In-kind contributions from the farm operation to the family should be included.
Asset Inventory: A complete listing of all assets controlled by the business including ownership type and/or control arrangements including leases and terms of agreement. For each asset an estimation of its productive capacity, and its opportunity cost.
Ownership Arrangements: Listing of all partnership, landlord/tenant, resource sharing (machinery, labor, etc.) agreements explaining how each owner/party is compensated and what the responsibilities and authorities of each are.
Estate Plan: Describes the exit/entry and retirement plans of the business owners including all transfer instruments (will, trusts, insurance, annuities, buy-sell agreements, etc.), and documenting all property ownership. Also should include instructions regarding health, disability, and other personal matters.
Statement of Goals: A description of business objectives covering both short and long term horizons. Personal goals relating to the business should be listed for each “stakeholder” in the farm with alternative plans to reconcile competing goals.
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