More Numbers Away From the Office
In my last Road Warrior stop, we discussed important financial numbers that producers need to keep top of mind while in the combine or working cattle. Now let’s jump into some more key numbers and financial metrics.
700 Credit Score
Whether you are applying for credit with John Deere Credit, Farm Credit, the local bank or another lending institution, you need to know your credit score like your collateral level or pulse rate. As a guideline, people with a credit score above 700 pose low credit risk. A score above 800 represents less than a 1% chance of delinquency, while above 700 corresponds to a 5% chance of delinquency. The average credit score in the U.S. ranges from 694 to 697. A score below 650 will require the agrilender to scrutinize your credit report and financials carefully. Your spouse’s score is often requested, as well. Lenders in today’s financially stressed environment will usually average the applicant and spouse’s scores, or make a decision based on the lower of the two scores. These scores are used for insurance and employment screening, as well.
Five Different Sources of Credit
This was the battle cry of a stressed agricultural credit in the 1980s. Split lines of credit – particularly more than five different sources – are often considered a red flag in credit risk. All too often, a producer would rob Peter to pay Paul, which is not sustainable in the long run.
75 Cents to a Dollar
Take your expenses and deduct interest and depreciation. Divide the result by total revenue. If you have 75¢ of expenses for every $1 of income generated, you are average. Less than 68¢ of expenses per $1 of income places you in the top 20% of profit managers. If your business is a corporation, also subtract corporate salary in forming the ratio.
Keep these guidelines mind as you are away from the office this fall.
Air travel is becoming much more restrictive in the amount and times of flights. While the Road Warrior may not be totally grounded by this, he will shift toward doing talks in clusters within a region, with very few one-day appearances in a location. Alicia, Angela and I are doing more webcasts and podcasts on special topics to offset the hassle of travel these days. I suggested to my Deere dealer recently that tractor and combine cabs need more technology to be compatible with new listening and learning devices. Maybe the other companies will beat them to it!
Editor’s note: Dave Kohl, Corn & Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected]