Easy Seasonal Budgets for Farmers
Running an agri-business is not always easy. Not only are there the long hours, the 24/7 vigil over livestock and attention to paddocks but then there are financial fluctuations throughout the year, external influences like droughts and floods and the sometimes problematic succession planning. We don’t have answers to many of these challenges but we are experts at how to plan the finances for the seasonal aspect of farming.
Making business decisions intelligently
There are two things you need to get a grip on with regards to the numbers so you can make informed decisions:
- A solid budget will set the foundation to painting the picture on where the income is coming from and more importantly when it can be expected.
- An accurate cashflow forecast will help predict the point when the cash hits the bank. This is paramount to keeping an even keel and ultimately to survival.
For many farming enterprises, their seasonal peaks and troughs in trading will not have any relationship to their financial year. Herein lies the challenge for the reporting. Many businesses operate on a July to June financial year (or April to March in NZ). In many cases, this period will have no meaningful relationship to the seasonal aspects of the business. Whilst that is acceptable for regulatory reporting bodies like the ATO (Australian Taxation Office), in reality this is not practical for the task at hand.
Just take, for example, a winter cropping enterprise in southern Australia. At this time of the year, many business owners in this industry are sitting down and trying to forecast numbers for the next 12 months. In many regions, this is an absolute priority, as they liaise with their lenders to try and determine working capital requirements, after maybe experiencing poor seasonal conditions last year. In this particular industry, a large percentage of their expense is incurred prior to the end of June, whilst the majority of their income will appear in the next financial year. So, from a financial year perspective, it is quite often the case that the expenses reported on the financial statements relate to income reported in a different financial year.
So where to start?
- Prepare an Annual Profit & Loss Budget (outside your statutory financial year). Plot your expected income and expenses. Often a large portion of the expenditure occurs prior to June in the current financial year whilst the bulk of the income is received in the next financial year.
- Don’t forget to prepare a Balance Sheet Budget to allow for such things as capital requirements, loan repayments such as online loans and owner’s drawings.
- Formulate a 5-year Budget. This is not only helpful for your own planning but it may be a requirement by your bank if you are seeking funding or any Government assistance.
- Now based on this ground work you can prepare a Cashflow Forecast to track the cash position at any given time. Predicting your cash position is imperative if you want to maintain control and make informed decisions about your existence.
Basic budgeting can be achieved in your MYOB accounting software. Accounting software usually focuses on statutory compliance and doesn’t always have very good tools to track your cash. Having an add-on like Calxa complements your accounts. The pain is taken out of seasonal budgeting for various reasons:
- No restrictions to the financial year
- Ability to budget up to 10 years ahead
- Time-saving shortcuts and wizards beat a spreadsheet any day
- Complicated cashflow forecasts are as easy as clicking on the report you want
It is worth noting that for regional based farmers, there are a number of drought assistance packages available, from both federal and state governments:
- Drought Recovery Concessional Loans assists farm businesses in Queensland and New South Wales.
- Farm Household Allowance supports financial hardship with a view of improving the long-term financial situation.
- Rural Finance Drought Concessional Loan Scheme is available to Victorian farmers experiencing a significant financial impact as a result of the effect of drought
- Drought Relief Assistance Scheme (DRAS) is for the grazing industry in Queensland.
- Drought Support for NSW Farmers offers a range of emergency options to manage the effects of the drought.
Many of these programs require budgets and business plans for up to five years as part of the application process. The Business Wise team is more than happy to assist in getting you started should you find yourself in this position, or you need a hand with the preparation of these financial reports.