Reflecting on your farm budget in the Spring

Your budget was made months ago. Does it still reflect your farm?

By October, your farm has a lot more information behind it than it did when you first put your budget together.

At the start of the season, your budget was based on what you expected to happen, right? Your anticipated milk production, milk price, feed requirements, fertiliser spend, repairs, animal health costs and everything else that goes into running the farm.

But now you have a few months of actual numbers and we can now look at how does the farm you are running today compare with the farm you budgeted for months ago?

Start with the big numbers - is milk production tracking where you expected it to be? How is your kgMS looking against budget, and what does that mean for your expected milk income?

Then look at the costs - have feed costs been higher or lower than expected? Has fertiliser spend changed? What about animal health, repairs and maintenance? Has wages been more than expected with staff doing overtime over calving? Or increasing fuel prices meaning contractors or other farm operating costs have been more than anticipated?

There may be perfectly good reasons for the differences. The important thing is understanding what has changed and what those changes mean for the rest of the season.

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What does it mean for your cashflow?

A budget isn't just about knowing whether you're going to make a profit at the end of the year! It can also help you understand when the cash is coming in and when it is going out, how much is coming in, and how much is going out.

If production is tracking differently, costs have increased or the milk price outlook has changed, your cash position could look quite different from what you expected when the budget was first prepared.

That can influence decisions such as:

• Can you afford planned capital expenditure this year?
• Do you need to adjust spending over the coming months?
• Are there large bills coming up that need to be planned for?
• Is your debt position changing?
• What might your tax position look like?
• Are you building the cash position you expected to?

These are much easier decisions to make when you have an up-to-date picture of where the farm is heading.

Importantly, your budget doesn't have to stay the same - in fact it rarely does! One of the biggest benefits of budgeting is not simply having a target to compare yourself against. It's being able to change the plan when circumstances change.

Your original budget isn't necessarily wrong because the actual numbers don't match it. The assumptions you made at the beginning of the season may simply no longer reflect what's happening on the farm. But every budget needs a starting point to begin with and that's where re-forecasting becomes useful.

Instead of continuing to work from the original assumptions, you can take the actual results you've achieved so far, update your expectations for the remainder of the season and see what the numbers look like from here.

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This is where software can make a real difference

At MBS Advisors, we work with farmers using Figured to help turn the farm budget into something that can be reviewed and updated throughout the season. The numbers come through live from your supplier as it happens.

So, rather than creating a budget and only looking back at it once the financial year is over, you can use your actual farm results as they happen to make decisions, and stay in a live, updated loop with your advisor as we can see it on our end too and work together. This makes it simple to change assumptions and to build a more current picture of where the season is heading, together.

Having those numbers in front of you can make it easier to make decisions before they become problems.

A farm budget should be a living, evolving plan. Because let’s face it, farming rarely goes exactly to plan - we all know that! Weather changes, production changes, input costs move, milk prices change, opportunities come up, unexpected repairs happen. So your budget should be able to move with the farm.

Don't let your budget sit in a spreadsheet until year end. October gives you a useful opportunity to take note of where you've been, update the assumptions you're working with and look at what the next few months could hold.

If you haven't revisited your farm budget since the start of the season, now could be a good time to sit down with us here at MBS Advisors and take another look, make a plan, and see the season through while being ahead of the game.

At MBS Advisors, we can help you review the numbers, re-forecast the season and turn the information in your accounts into practical decisions for your farm.

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We are more than just year-end accounts. Contact MBS Advisors here.

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