Crop Insurance Today May 2012 - (Page 35)

TODAYcrop insurance STEP 6- IDENTIFYING AND EVALUATING ALTERNATIVES Q:What alternatives are feasible for the future? This is the sixth in a ten-part series of articles on “The Steps of Farm Business Planning.” The introductory article for the series was published in the November 2010 issue of Crop Insurance TODAY® and additional articles will be printed each quarter. By Dr. Laurence Crane, NCIS Consider different possibilities for using your physical and human resources to meet your business and personal goals. Be creative, look at potential enterprises you may not have considered in the past, and outline several alternative farm operations. From this group of possible enterprises try to organize a farm business to meet your goals, as well as match available resources with your need to withdraw cash, and your ability and willingness to assume risk. The purpose of this step in the planning process is to identify, describe, evaluate, select and plan the implementation of alternatives. The previous step helped you determine whether you need or want to change your current farm business. That decision was based on the assess- ment of whether your present farm business will meet your needs and fulfill your goals in the future. For farmers envisioning change, this step suggests a procedure for describing and evaluating alternatives. After evaluating alternatives, you may realize that your current combination of enterprises on the farm is the best possible given the resources available to you. It is only by testing alternatives that one can determine whether the current farm can be improved. But for farmers who decide to implement an alternative, the next step in the planning process (Step 7) considers the intermediate actions you may need to take to establish your desired farm; that is, describe how the transition from the present farm to the desired farm will be accomplished. Why Does the Farm Need to be Changed? An initial activity for this step is to answer the question of why you want to change the farm; that is, what is unsuitable about the current farm, or in what manner may the current business not meet your objectives in the future. Such statements or explanations often help in deciding whether to implement an alternative. They can provide an indication of why you want to change the farm, which business goals or personal interests are not being satisfied, or the manner in which your goals are not being met. Following are two example statements of why a current farm is not satisfactory for the future: “My debt-to-asset ratio is nearly 0.5 and the equity in the farm is $250,000. I want to decrease that risk (lower the debt) and increase the equity so I am better prepared for retirement. However, based on the analysis completed in the previous step, I would need above average yields at all times to make much progress toward reaching this goal over the next five years.” “The farm is now generating (and is projected to continue generating) $26,000 of cash withdrawal each year, and my spouse and I are working off the farm to make up the difference. I would like to increase the amount of cash we can withdraw from the farm so we can give up one of the off-farm jobs.” Precise statements like these about the situation or problem that you want to address is a critical first step to making changes. You also may want to describe why you want to make a change, such as generate more income so another family member can join the farm operation. With these statements, you are setting goals for the change; that is, establishing benchmarks against which to test whether progress is being made. CROP INSURANCE TODAY 35

Table of Contents for the Digital Edition of Crop Insurance Today May 2012

Commitment to Excellence
2011 Year in Review
Farming: Pessimists Need Not Apply
Leadership: NCIS Regional/State Crop Insurance Committees
NCIS Board of Directors
Insect Resistance to Bt: Is it a new threat to crop production?
Another Successful Convention
Adam Vetter Given Outstanding Service Award
Pat Flanagan Given Industry Leadership Award
Step 6-Identifying and Evaluating Alternatives: What alternatives are feasible for the future?
In Memory of John F. Ames

Crop Insurance Today May 2012