Working Capital. Debt/Asset Ratio. Net Worth. Once your balance sheet is established you can look at some simple and highly useful benchmarks. The first benchmark is working capital. A simple subtraction of total current liabilities from total current assets. Observe your benchmark handout and find that there is no standard benchmark for this number. Some sources suggest 25% of gross revenue is a good number, other sources say it depends on the size and scope of the operation. The riskier the enterprise/operation the higher the working capital needs to be. For our purpose we will discuss this ration in terms of a negative number or a positive number. The bigger the number the better. If a negative number, there is no room for a slip in income and there must be a risk plan in place to cover a bad income year, as well as a plan to say how additional revenue will be raised. If this is not possible the next step is working with your lender to restructure the debt that comes due in the next 365 days to match the anticipated lower revenue. Next examine the debt to asset ratio. If this number is greater than 40% there is a yellow flag for this level of debt. If revenue slips there needs to be a plan in place to assure meeting the required deadline for full payment. The smaller this number is, the more assets owned free and clear of debt. Some of this debt free asset can be used to leverage more debt, but be very careful about this kind of thinking. The younger a farmer/rancher is the more acceptable, the older a farmer/rancher is, the riskier this move is as a person may not have time to work out of the planned debt. And the last number to consider is net worth. Just like the name implies, this is the bottom line of what a person or entity is worth net it’s liabilities. Looking at one net worth on it’s own doesn’t say much until you can line up the years of net worth and see which way the wealth is going. Net worth is a measure of solvency. If net worth goes below the value of the assets (and that includes an ability to pay any taxes incurred by a sell out) then the business is insolvent.