Another component of financial risk is over-capitalization.
You have to understand what part of your operation is capitalized and what part is focused on producing revenue assets. This ratio is called the turn-over ratio – for every 1 million dollars of assets – what percentage is turning over into gross-revenue every year. A great target is $400,000 or 40%. This money is what you use to pay off your debt, pay yourself, and feed your family.
Watch Reg Shandro explain how to find out whether your farm operation is over-capitalized.
Is your Farm Operation Over-Capitalized?