Budget tracking helps prep your farm for the future
Budgeting is more important than ever as many farms become multimillion-dollar operations with complex business structures, tax management, agronomy and financial needs.
“Not only should every producer be doing some form of budgeting or financial planning every year for their own knowledge and understanding of their business, but we’re starting to see more and more banks demand it,” says Kelly Bromm, a farm management consultant with MNP.
With the right farm financial software, budget tracking helps prepare a farm business for the future, allows it to grow and provides peace of mind to the owners, according to Bromm.
Get the full picture
Farmers usually have a good indication of potential gross revenues and input costs. But many that MNP consultants meet for the first time, either don’t calculate their fixed costs, or include the costs that would help provide the full picture, Bromm says.
“And unless they’re tracking historical results for comparison or benchmarking themselves against their peers, are their numbers good, average or poor?”
Helps with decision-making
Budgeting and planning can help producers understand if they’re making good decisions.
If expanding the land base or buying new equipment, debt servicing ratios, debt to equity, and working capital will be affected, Bromm notes.
By tracking the numbers, farmers can model potential scenarios to make informed decisions, and possibly help mitigate some of the risks.
Take baby steps
If there’s a lack of time or business acumen for budgeting, consider enlisting an ag consultant to help plan, Bromm says.
Even taking baby steps is a good start.
Get a good sense of how to read the dashboard of your business.
“You don’t have to be an expert in financial analysis but get a good sense of how to read the dashboard of your business,” says Patti Durand, an agriculture transition specialist with FCC. “Get a handle on key ratios to do a quick snapshot of your position.”
Programs such as AgExpert Accounting are accessible, with farm records available from any device. Free basic plans include records of transactions like income, expenses, loan payments and capital asset purchases and reporting.
Farm gifts can skew the numbers
Durand also urges farmers to track any goods and services they trade.
Often, farm parents will provide a helping hand to their offspring who are starting out, like the use of equipment in exchange for labour.
But an unintended budgetary consequence of farm gifts can blur the true cost of farming.
“If you’re not paying for a major expense, the farm inherently appears more profitable than it is, and it influences decision-making habits,” Durand says.
Farmers can look up rental rate guides from provincial agriculture ministries, and further consult with peers and advisors, she suggests.
Tracking the numbers removes any guesswork and allows for accurate budgeting.
With a growing farm, it’s more important than ever to make budget tracking an active part of the farm business. Experts urge producers to keep on top of income and expenditures, including gifts or in-kind income or expenditures such as farm labour. Hire experts if time or know-how is needed.
Article by: Richard Kamchen