The first events, held in February and March, highlighted the importance of a carefully considered budget that is linked with the goals of a farm. DairyNZ’s Carolyn Bushell explains.
As a dairy farmer you are a business manager – clarity on purpose and a plan to achieve your goals is crucial.
The difference between those that will get through volatile times and those that won’t, is the existence of a cashflow budget for the next 18 months that is linked to a plan.
Have a plan and a realistic budget
To coin the phrase ‘just do it’ – getting started is often the hardest part.
Make sure your budget:
- is based on fact and good advice – if you don’t know, ask
- links to a longer term outlook and goals
- resonates with you and your team – make sure that the person who does the spending either develops the budget or is closely involved in its development
- considers the ‘need to haves’ and the ‘nice to haves’.
Test your budget and get support
Reduce the risk of volatility by testing your budget under different scenarios for milk price, production levels and farm working expenses. This ‘sensitivity analysis’ will help you to measure the impact of changes and to build contingency plans.
Get input from advisors (bankers, accountants, other farmers) early on and ask for their open and honest feedback and input. Use their networks and skills to access current and relevant information.
Use it to inform your decision making
Knowledge is power so keep your budget alive, make it an integral part of the decision making process. Implement your plan effectively and monitor it regularly so you know if you are on track, and if required, adjust it as things change.
Prioritise the time to update your budget at least monthly. Track actual income and expenditure and cast your eye forward to see the flow on impacts of unexpected changes.
If the forecast result is negative, consider how you will fund it. Can you increase working capital, use cash reserves or set up more permanent cover? Are there times where income exceeds expenditure – can you capture this opportunity to pay down debt, build cash reserves or make capital purchases?
For more information on budgets visit dairynz.co.nz/budgets
This article was originally published in Inside Dairy April 2015