Budgets a vital management tool
Abudget allows smart decisionmaking for your farming operation. Creating a budget may seem daunting but now farmers have the perfect opportunity to give this some serious thought.
With a volatile payout, and cash farm working expenses increasing per milk solids in 2011, it is important that farmers know financially what is going on in their business.
Examining historical data will show areas in your farm that are generating the most profit and areas which need attention.
To obtain a better understanding around expenses use the Cooperaitken farming dairy reports, which show average spend in all expense categories. With this information you can make budget decisions for this coming season.
It is important that once farmers have pulled a budget together they then monitor actual expenses against it.
Budgets should be shared with key people to your business such as your accountant, bank representative and farm adviser.
A budget will enable you to know how much income tax and GST you will need to pay and when.
Specifically, farmers should be talking to their accountant now about the amount of provisional tax due on June 28 and get an indication for future payments.
Using their budget to plan for this will avoid the payment of any ‘‘use of money interest’’ as well as avoiding an overpayment of tax.
A budget helps answer the ‘‘what if’’ scenarios such as how a 10 per cent change in payout affects the bottom line.
This will aid further business decisions and your budget, and will give you the knowledge and capability to plan for the unforeseen.
Creating and following a budget will help with those large purchasing decisions such as purchasing new equipment, feed, more stock, a new farm, or paying off debt.
The budget allows the decision to be made on actual business needs rather than emotional wants and will take into account every aspect of your farming operation. Business and personal strategies become easier with the information of a well thought-out budget. This allows for planning capital expenditure or an overseas trip.
You can choose to create a budget by hand, using a spreadsheet, or using farm accounting software.
Your budget will never be 100 per cent accurate and you need to constantly review what is actually happening.
Should any significant differences occur you must reforecast the budget and modify your farming business accordingly.
Unplanned events will always occur such as a machinery breakdown but by having the budget you can react to the situation in an informed and accurate way. 2. Attend AGITO courses to help with you budgeting skills. 3. Check out the Dairynz website for their online budget tool. 4. Use past results budgeting. 5. Be realistic. 6. Remember to separate out budgets for fertiliser, feed and personal drawings. 7. Align your budget to your long-term goals and know how much you need each year to achieve these goals. 8. The budget has to be your budget, not the bank’s. 9. Share your budget with your advisers. 10. Monitor and modify the budget and seek help early if things are not going as planned.
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