How do things look now? (continued from last month)
The following two tools help us to understand where the business is now.
This is a critical issue: is, or will the business be in a position to enable family members to realise their future objectives?
The first tool is the Statement of Position (table in yellow). This document is a simple list of assets and liabilities, to provide an appraisal of net worth.
Indeed, such a document may already be regularly updated for the bank.
A statement like this is not difficult to prepare because growers will have most of these figures at their fingertips; and it can be updated each year from the accounting system Balance Sheet.
The bank manager will be aware of our financial position in any case and would welcome a discussion about the bank’s view of the potential to borrow money for strategic objectives given the net worth of the business.
The second tool (table in green) is a simple performance analysis. This identifies the operating cashflow generated by the business, and the degree to which it is sufficient to cover known commitments. In the best of worlds there will actually be free cash at the end of the exercise. That is, the business can meet its commitments and still have the capacity to generate a cash surplus.
In this example, the business is in the fortunate position of being able to generate free cash. This indicates that the business can handle a higher investment budget, or the implications of an adverse season.
Again, I suggest that it would not take long for any grower to develop his own annual cashflow model (as above) and in doing so, gain a further insight into the financial strength of the business and its capacity to deliver family objectives.
SWOT analysis continued next month
See this article in Tree Fruit Dec 2015
