Internal scanning involves looking inside the farm business and identifying strengths and weaknesses and assessing the businesses’ resources and management’s skills. It is part of the strategic planning process. An overview of Strategic Planning for a Farm Business and how internal scanning fits into the planning process is available. Internal business scanning is comprised of the following three categories: 1.
Farm Business - What are the unique strengths and limitations of your business? 2.
Individual Person - What are the unique skills and limitations of each person involved in the management of the business? 3.
Individual Enterprises - How will each enterprise compete in the marketplace? What are the critical factors that determine the success or failure of each enterprise? Making a Business Inventory
The first step in internal scanning involves describing your business. This will help you assess the value of the various aspects of your business. Below are four broad categories that can be used to describe your business. •
Physical Resources - The farm business consists of physical resources. These can easily be identified by most farmers and include land, machinery, facilities and other assets. •
Human Resources - The farm business also consists of human resources. These are more difficult to identify. Granted, we can easily name the people involved in the business, but describing what function each person provides for the farm business is more difficult. These include topics such as identifying the management skills of the participants and describing the decision making structure. •
Other Resources - Other farm business resources such as financial resources also need to be identified. For example, the business records will readily identify these from the business financial statements. To identify financial resources you may want to ask yourself if there is adequate working capital. Is there borrowing capacity if needed? Are there outside equity sources? •
Other Factors - A variety of other factors including reflecting on historical success, describing business culture, reviewing the information collection system and identifying any other relevant factors. Scanning the Farm Business
Assess each of the following aspect of your business.
Current and Past Financial Performance - How has the business performed financially in the past? Has it met the expectations of the operator and the family? Performance can be assessed with the following factors: o
Net farm income.
Return to management.
Earned net worth growth.
Return on investment (equity).
Adequate Income - Closely associated with business performance is the ability of the business to provide adequate income for the farm family. This involves current needs and also expected future needs. What is the ability of the business to provide the following: o
Maintain or expand family living and lifestyle.
Provide for family living needs plus reinvestment for growth of the business. o
Provide for future family needs such as college expenses, etc. o
Provide retirement income for the operator.
Provide income for more than one family if a succession strategy is involved. o
Financial Status - Also related to business performance is the current financial status of the business in terms of liquidity (cash-flow, working capital) and solvency (level of equity). o
Liquidity -- current ratio, working capital, credit reserves. o
Solvency -- net worth (earned and market value), debt to asset ratio, risk-bearing ability. o
Information System - What is your ability to track what is happening economically, financially and physically in your business? o
Track income and expenses.
Determine farm income and cash flow.
Project financial performance.
Monitor enterprise costs and returns.
Monitor efficiency factors.
Unique Resources - Does the farm business and its management...
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