When you’re gone for meetings or involved in day-to-day tasks, it’s easy to forget about business plans and budget goals. Doing so can be lethal for your business. Instead of seeing these planning documents as one-time tasks, use them as daily management tools.
“The best budgeters and financial managers don’t let the budget sit on the shelf for nine to 12 months,” says Andy Pringnitz, a Johnston, Iowa, customer success manager for Granular. “They’re watching it regularly throughout the year.”
Budgets are tools to help you stay focused on goals. Use them to plan and project annual costs and revenues.
“It is important to budget in order to optimize production decisions and forecast the business’s ability to meet financial objectives,” Pringnitz says. “Budgeting is a process and tool that a farm can use to provide confidence in the likelihood of meeting, or in some cases not meeting, the desired outcome.”
Specific And Realistic
Follow two guidelines to maximize your plans: First, be specific and realistic, and second, monitor and update them regularly. Budgets remove the guesswork when determining your cost of production, and they play a key role in your marketing plan.
“You can’t improve what you don’t measure, and budgeting is the first step toward measuring financial performance for a farm,” Pringnitz says. “From there, the farm will have a framework for optimizing decisions that impact financials as the year goes on. Budgeting also creates a discipline mechanism for farms.”
Use your budget as a guide for locking in positive margins when marketing your grain or livestock. “Without knowing break-even sales prices, farmers are relying primarily on luck—and in low-price environments like we’re seeing in farming today, relying on luck is a bad idea,” Pringnitz points out.
Be realistic when projecting your income and expenses.
“This is not a time to be optimistic,” says Wendy Osborn, an Ohio-based regional vice president for Farm Credit Mid-America. “It is best to plan for the worst-case scenario. Try to avoid underestimating expenses or overestimating income.”
Monitor And Update
Revisit budgets as costs and revenues shift from projections to reality. “The great thing about a budget is that once it’s created, it can be improved,” Pringnitz explains. “The best farmers go through each line item and think through options for cutting costs and upping revenue.”
Also, use your budget documents to evaluate your working capital and net worth. Compare balance sheets year over year to analyze progress. “Your net worth should increase steadily each year. If not, that’s a red flag,” Osborn says.