Seven golden rules for farm budgeting

26 March 2020

Against a backdrop of uncertain and dynamic conditions both in the agricultural sector and the commercial sector more broadly, banks are putting more emphasis on farming business’ ability to repay loan principal.

With the pressure from the banks putting strain on access to credit in the rural sector, it’s critical your farming operation has a realistic budget in place to prove good cashflow and long-term viability.

A budget does not need to be hard work or complicated, however it should be robust enough that it can be used to make more accurate decisions and reforecast regularly.

To help with your budgeting process, here are seven golden rules you should follow to give you the best chance for success:

1. Get the right information

Use last year’s data and numbers and ask yourself, is this realistic for the coming season? Look at three-year averages and question yourself on what has changed.

2. Use the right tools

Make sure your system is easy to use for all parties and can be shared easily with the key decision makers on your farm.

3. Be realistic and have hard conversations

Think about individual, business and personal circumstances. Making tough decisions now may be beneficial in the long run

4. Project more than one year

An annual budget is often better looked at in consideration of year two and beyond so prepare your budget for the next two years.

5. Be accountable

You are responsible for the actual results. Meet regularly with your financial adviser and compare your budget to actual results.

6. Look at the “what if”

Stress test your budget results by looking at drops in price and/or income. Create contingency plans to enable your farm to get through.

7. Keep planning into the future

Consider the farming environment and how it impacts your farming operation. Consider what you need to do to future proof your farm. For example, a capital investment in irrigation.

When followed, these rules will help your farm’s budget be an effective planning tool you’ll be able to update on a regular basis throughout the year. It’s useful to retain your existing budget to be able to compare or benchmark if you like the changes you have made. Some goals will be achieved while others may not due to factors outside of your control, but your original budget is a reminder of where you wanted your business to be.

If you have a farming business in the catchment area and would like tailored advice for your agricultural business, contact the Business Advisory team.

Findex has developed a Government Stimulus Health Check and free Business Wellbeing Toolkit to help businesses manage potential risks and take full advantage of eligible stimulus assistance. Book your Health Check here.

Findex NZ Limited, trading as Findex

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