Farming without a financial forecast can be like driving in unknown territory without a map. You may know where you want to go, but how do you get there, what roadblocks might be in your way, and are you heading in the right direction?
While farmers across the country have had plenty on their plate over the last few years from fluctuating commodity prices, severe weather events, legislative changes, and ever-increasing costs, it’s easy to understand why farm budgeting may not feel like a top priority - but is this a mistake?
There can often be reluctance from farmers who have never prepared a budget before. Common pushbacks include; ’what’s the point when no season is ever the same, we can’t predict the weather, we can’t predict commodity prices, plans always change, and the bank hasn’t asked for one’. To spin this on its head, these are the very reasons why farm budgeting and forecasting is so important to the agricultural sector.
For example, if lamb, beef or dairy prices drop, farmers may need to reassess tax liabilities, optional on-farm costs, capital repayments, and capital expenditure etc. Maybe the tractor can do one more season, maybe the upcoming tax doesn’t need to be paid, maybe you should discuss interest only options with the bank: reforecasting allows you to know where cash might get tight, where cash can be saved, and provide reassurance to the farmer.
Having a farm budget and financial forecast in place enables you to:
Understand cashflow needs
Monitor income and expense fluctuations
Assess debt and repayment opportunities
Mitigate risks
Show confidence to the bank
Make informed decisions
Provide real time information
It can also assist with:
Tax planning
Farm succession planning
Funding applications
Scenario planning
Accountability and motivation
Luckily, with the huge advancement of farm budgeting software, preparing a budget and updating forecasts when necessary is not the daunting task it used to be. Reforecasting can be as easy as clicking a button. Gone are the days when the farmer dips into their shoebox of receipts and the accountant prepares a tax return telling them how much tax to pay.
Having real time information at your fingertips is a powerful tool in today’s uncertain environment and part of running an agribusiness means having a financial forecast and farm budget. By having access to real time information, you are also able to extract more value from your advisory team.
Having regular meetings with a strong team of advisers is particularly important when facing uncertain times. The accountant and wider farm advisory team should have their finger on the pulse and be equipped to help you stay on track.
Here at Findex, we have vast experience working with farming and agriculture clients, preparing budgets, forecasting, scenario planning and so much more.
Remember, farm budgeting does not need to be complicated, and with the right advice you can add significant value to your farming business. To find out more about how we can help you create your farm budget and financial forecast, contact us today.
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This document contains general information and is also not intended to constitute legal or taxation advice. If you need legal or taxation advice, we recommend you speak to a qualified adviser.
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