Knowing how to create an accurate budget is an essential part of managing a successful farming business. You can’t predict what will happen in the world of agriculture, but knowing your costs and profits season after season can help you manage your business efficiently. Good financial health is key to making smart investments, minimizing waste, and pursuing business growth. Learn how to manage your finances and make informed decisions for your business with this list of what to include when budgeting for your farm.
Complete vs. Partial Budgeting
Every budget must start with a clear scope. Before you can start calculating expenses, you need to decide what your budget will cover. One option is a complete budget that covers your farm in its entirety, including all land, equipment, livestock, and operations. Alternatively, you can create a partial budget, which focuses on a single specific aspect of your business. Determining which type of budget is right for your needs will depend on what you want to do with it.
Partial budgets are great for short-term goals, such as purchasing new land or upgrading equipment. They allow you to focus on one part of your operation and determine expenses and potential profits for a specific change.
Complete budgets, on the other hand, give you a wider view of your finances. If you’re trying to optimize your overall workflow and find ways to save money throughout your entire business, a complete budget is the way to go. Complete budgets are also helpful when creating or updating business plans, applying for farm loans, or making other large financial moves that impact your entire business.
Short- and Long-Term Goals
No matter what kind of budget you create, it’s important to start by establishing clear goals. Budget goals help you set expectations and provide specific objectives for you to focus on as you analyze your expenses and profits. This offers a clearer view of what steps you need to take, what changes you might need to make, and what operations are currently successful. Proper goal setting also helps you keep your priorities in mind as you allocate funds, leading to more informed and effective financial decisions.
It’s important to include both short- and long-term goals in your budgeting. Focusing solely on short-term goals can lead to shifting priorities, unclear decisions, and a lack of focus down the line. You can end up prioritizing the wrong things and fail to set yourself up for long-term success.
However, focusing exclusively on long-term goals can also cause problems. Without short-term goals, it’s difficult to track progress. It’s also harder to develop actionable steps and create the tangible changes your business needs to achieve consistent, long-term improvement.
Expected Production
Once you establish clear financial goals, you can get into the details of your operation. Start with your farm’s expected production. This is a list of products you expect your farm to produce and how much you expect to produce in a given time period. In addition to analyzing your current operations, review budgets, sales numbers, and other documentation from previous years to get as accurate an estimate as you can.
Projected Prices and Income
Once you have your expected production, you can calculate your projected income. Start by determining the projected prices of your farm’s products. You can use documentation from previous years and market analysis and predictions to determine these projected prices. Multiplying the projected price per product by your expected production gives you your projected income.
Be sure to include pricing for all of your sales methods. Projected pricing will vary between distributing methods and partners. The more specific your information is when creating this part of your budget, the more accurate your numbers will be.
Expenses
One of the most important parts of what to include when budgeting for your farm is expenses. This is the list of all the costs your farm will face over the course of the year. Subtracting your expenses from your expected income gives you your projected profits for your farm.
It’s crucial to be thorough with your expenses; forgetting to add a specific expense to your budget will lead to unexpected costs down the line that can completely throw off your financial plan. There are many different types of expenses to consider, including materials, maintenance, and labor.
Material Costs
Material costs refer to the tools and materials you need to produce your farm’s products. This might include seeds, fertilizer, and planting tools. It can also include the price of livestock and feed. Material costs can even include less obvious factors, such as packaging expenses or fuel for your equipment.
Maintenance and Upkeep Costs
From veterinary visits for your livestock to the electricity bill that keeps the lights on in your office, maintaining a farm business takes money. Factoring these costs into your budget is a key part of covering all your bases and ensuring you have the funds to keep things running smoothly.
Consider routine expenses, such as veterinary visits, equipment maintenance, and utility bills. Review budgets and bills from previous years to get an accurate picture of what you can expect from maintenance and upkeep costs in the coming years.
Labor Costs
Your farm budget should also include the money you spend on your employees. Factoring in annual salaries and any other labor costs is a crucial part of running any business. It also helps give you a clearer idea of when you can invest in more employees or when you need to reorganize to better afford labor costs.
You can also include any outsourced operations in your budget, such as paying a marketing team or a logistics business.
Updated Information
A static budget won’t be beneficial in the long run. If you want the information to be accurate, you need to update it regularly. This allows you to include new costs and expenses or update the budget with more accurate information from the most recent market research. The more up to date your budget is, the more reliable it is—and the easier it will be to make informed decisions about your farm’s finances.
Financing Success With Farm Plus Financial
From providing expert financial advice to offering competitive loans for farms and other rural properties, Farm Plus Financial has your back as you navigate the world of agricultural business. Make an informed decision about your financial needs when you explore our rural property finance options today.
