As South Dakota Rural Enterprise Credit Officer over the past years, I have looked at the financial statements of over 20 development corporations from across the state of South Dakota. I would like to focus in our next few issues of this publication on the asset side of the balance sheet. We’ll take a look at some easy and common sense suggestions for maintaining your assets as an asset for your organization, community or service area rather than a future liability or expense. Of course, just like the people your organization is helping, there is no “one size fits all” solution and each community or area has its own special situations.

The asset side of the balance sheet can include items such as cash, loans receivables, equipment or property. First, let’s take a look at the cash side of your assets. I have seen excellent management to maximize return if the cash is idle. Idle cash is needed to provide an operating reserve; however, is idle cash held for an extended period accomplishing your development corporation’s mission? If your development corporation makes loans to businesses, those loans are an asset to your corporation. Properly structuring the rate and terms to assure that your organization has a margin on all loans will provide your group enhanced self-sufficiency in the future.

One very important point for all loans that are made by the development corporation is that your organization properly structures a loan loss reserve account. The first step is to properly risk rate all loans, not only at the time of making the loan, but on a periodic basis over the life of the loan. SD Rural Enterprise recommends that your development organization set a minimum loan loss reserve of 5% on all loans outstanding. We also recommend that loans identified as needing additional reserves for risk have a specific percentage to protect your organization from any future losses.

One key item that I have seen more than once is that organizations identify a certificate of deposit or other investment for loan loss reserve though they never expensed the amount on deposit. While this does provide a false sense of security to the board of directors and staff, any future loan losses will still need to be expensed and will directly hit the bottom line at the time of loss.

In our next issue, we will take a look at equipment and real estate and ways to maximize those assets for the strength of your group.

2008 SUMMER REPORT
	Entrepreneur program finalist communities
	Appreciating the value of lifetime learning
	First round of CVAC planning complete
	Parker wins Community Success Stories award
	Wagner to represent SD Rural Enterprise
	Early childhood development sound investment
	Slow down and make things happen
	Don't let your assets become a liability