Budgeting

Budgeting

A budget is in general terms a list of all planned costs (expenses) and income (revenues or output).

Budgeting is about understanding how much income the business has, how it is to be spent or otherwise accounted for, and this information can then be used to plan how to best allocate those funds.

Partial budgeting may also be appropriate where changes in business methods and systems are investigated, such as the potential of short-term joint ventures like a contract farming agreement.

Capital investment in the farm business can provide short or long-term benefits, depending upon the type and scale of the project.  Being able to calculate when the investment will provide a large enough return to be able to cover the original cost is essential when planning for the future profitability of the farm.

The cost of machinery is one of the highest and worst-accounted expenses in farming; many farmers do not account effectively for running costs such as servicing, maintenance, fuel and insurance.

Types of budget:

  • The profit and loss account, which describes the business's financial transactions and the resulting profit (or loss) for the trading period
  • cash flow forecast calculated from likely or predicted future costs and outputs in the profit & loss account used to identify the timing of money shortages to help develop a plan to manage this
  • gross margin calculation, used to indicate the potential level of productivity of a business enterprise within a farm business or of the whole farm itself
  • partial budget used to estimate the potential performance of a future enterprise against the current
  • Return on Investment (ROI) is a more complex means of determining the potential viability of an investment 

 

Technical budgets:

  • Milk production forecast uses herd size, average yield and calving data alongside herd lactation curves to give the milk production potential for the herd in a given time
  • Heifer cost calculator allows you to enter your farm costs and look at the effect on cost to first calving
  • Feed budget to asses feed availability against requirements to help make judgements on purchasing
  • Silage budget to assess your dairy herd’s silage requirements and availability
  • Grass budget to look at field cover assessments and the intake needs of the milking herd and dry cows.