As a graduate student at Texas A&M University during the 1980’s ag crisis, I was involved in a study examining the use of financial management practices by Texas ag producers. Among other things, we learned that 28% of producers never used a balance sheet, 69% never used an enterprise budget and nearly half never used a cash flow budget. We were not able to publish the results of our survey because someone up the administrative or political ladder did not want it to look like ag producers were not doing all they could to help themselves through the ag financial crisis.
After that project, I have often wondered if using these financial management instruments for decision-making would have made any difference in the financial success of those ag producers. There have been a few studies undertaken to examine this question, but to my knowledge, no one has been able to really determine the financial value of these tools.
Dr. David Kohl, professor emeritus of Agricultural Finance in the Department of Agricultural and Applied Economics at Virginia Tech University, has persistently taught producer groups that knowing their costs of production, breakeven metrics, and cash flow requirements are key decision-making tools. He developed a Business IQ questionnaire for producers to rate themselves on their employment of financial management tools.
To learn more about how your Business IQ may affect your decisions, read this article from the Center of Agricultural Profitability.
