The key to a successful farm business is to have your finances all straightened out. Unfortunately, some business owners are often overwhelmed by financial planning and don’t know where or how to start.
Sorting your business finances doesn’t have to be complicated. You could start looking into your farm budget, and from there, you’d be able to identify areas that you need to focus on.
What is Farm Budgeting?
It’s the process of assessing your farm expenses and net profit in a given period. Consider evaluating your farm budget every once in a while. This way, you could monitor your business’s performance, identify pressing concerns, and take immediate action when you need to.
Types of Farm Budgeting
Depending on your company’s needs, you may choose from the following types of farm budgeting:
1. Enterprise Budget — Also called gross margin budget, an enterprise budget is the foundation of your whole farm budget. It estimates your cost and income for a single cycle. Additionally, it’s an excellent way to compare various enterprises.
With this type of budgeting, you typically compute per hectare. A sample formula for an enterprise budget is to subtract your fixed costs from your gross margin. To get your gross margin, deduct your variable expenses from your gross income.
Enterprise budget may not be ideal for comparing enterprises side by side if they don’t have the same overhead costs.
2. Partial Farm Budget — This type of budgeting assesses the result of any adjustment to your farm plan. It may include additional costs such as upgrading your farm equipment or hiring additional contractors to help you harvest crops.
3. Whole Farm Budget — With a whole farm budget, you’ll be working with your balance sheet, cashflow, and projected income statement. You may also have to reconcile stock and production to ensure you are hitting your goals. This type of budget provides a summary of all expected income, costs, and revenue of your farm operation.
Remember, “those who fail to plan, plan to fail.” When you know where your business is financially, you would be more confident in making sound financial decisions and expanding your farm business.
Do you need help with farm budgeting? Our team at Sutherland Reid & Farrar is ready to assist you. We provide a range of business services, such as budgeting, accounting/taxation, and cashflow forecasting. We could help you structure your budget according to your business goals, needs, and current financial situation.
Are you ready to work on your farm budget? You may schedule an appointment with us through 02 6752 9700. You could also send an email to office@srfpl.com.au for more information about our services.
