Financial literacy greatly increases the chances of success of an agribusiness. This of course begins first with an assessment and understanding of the immediate status of the business, drafting the financial objectives and then working towards them with the corresponding agribusiness staff. The holistic functionality of this process requires a thorough comprehension of business terms the parties involve will meet.

A fixed asset is a tangible, long-term resource used for the business and not expected to be sold or otherwise converted into cash during the current or upcoming fiscal year. Items that classify as fixed assets are land, vehicles, machinery and furniture. A business resource that is nonphysical is called an intangible asset.

These can be items like patents, goodwill, and intellectual property. Liquidity is an indicator of how quickly an asset can be turned into cash for full market value. For the business to be financially flexible, the assets have to be more liquid.

According to Practical Business Skills (2023) equity is a business’s value, and someone who has equity in the company owns part of the company. Two business partners who own equal parts of a business both have an equal amount of equity in the company. If the business is a corporation, the owners’ equity is called shareholders’ equity and shareholders receive shares or stock. Someone who owns half of the corporation’s stocks owns half the company.

Angel investors are individuals that help start-up businesses with investments. In exchange for their financial assistance these individuals may want partial ownership of the agribusiness, but will tend to take a less active role in running the business. Individuals that may want to play an active role in the running of the agribusiness in exchange for their financial assistance or investment are known as venture capitalists. They typically offer larger loans to somewhat established businesses. Venture capitalists tend to invest in companies that are expected to grow quickly and have the potential of becoming multi-million dollar businesses.

If an agribusiness’ activities are funded by equity financing and there are established shares and shareholders as part of the controlling interests, the agribusiness is obligated to provide a financial report that shows changes in the equity section of the balance sheet. This section is known as the Statement of Shareholders’ Equity.

Workers’ compensation insurance is a type of insurance required by law that provides coverage for medical expenses, lost wages, and rehabilitation for employees who are injured or become ill at work. Insurance can help protect an agribusiness against a financial loss. In exchange for making regular insurance premium payments, the insurance company will pay the agribusiness during a covered incident. For example, some types of agribusiness insurance might help an agribusiness recoup financial investments made in crop production loss due to flood or drought.

The insurance company will cover the cost of the damaged crops and pay for the lost income. Insurance that provides temporary financial assistance to workers who have lost employment through no fault of their own, such as being laid off or quitting due to unsafe working conditions is known as unemployment insurance. Long-term disability insurance is coverage that protects employees from loss of income in the event they are unable to work for an extended period of time due to illness, injury or accident.

General liability insurance aids to protect a company if someone else, or someone else’s property, is damaged by the agribusiness or on the agribusiness’s property. A business credit report describes items like how large the company is, how long has it been in business, amount and type of credit issued to the agribusiness, how credit has been managed, and any legal filings (that is bankruptcy). This information helps weigh risk exposure and financial health. This information is vital for lenders, investors, and insurance companies.

Finally a business credit score is calculated based on the information found in the business credit report. Using a specialised algorithm, business credit scoring consider all the information found in the credit report and give the agribusiness a credit score, which is also known as a commercial credit score. Lenders and suppliers use this number to evaluate the creditworthiness of the agribusiness. A credit limit is the maximum amount of money an agribusiness can use at any given time offered by a lender. The business can be said to have reached its credit limit or “max out” its credit when it borrows up to or exceeding that maximum amount.

References

20 key business terms every professional should know. (2023) Available at: https://www.suitably.com/blogs/well-suited/20-keybusiness-terms-every-professionalshould-know

Practical business skills. (2023) Available at: https://www.practicalbusinessskills.com/resources/glossary-of-terms

Basic financial terms. Available at:https://www.studysmarter.co.uk/explanations/business-studies/introduction-to-business/basicfinancial-terms/

Wood, M. (2020). Business finance.60 Business and Finance Terms You Should Absolutely Know. Available at: https://www.fundera.com/blog/business-finance-terms-anddefinitions

Hayes, A. (2022) What Is a Business? Understanding Different Types and Company Sizes. Available at: https://www.investopedia.com/terms/b/business.asp

CFI Team (2022) Financial Literacy – The cognitive understanding of financial components and skills. Available at: https://corporatefinanceinstitute.com/resources/management/financial-literacy/