Budgeting do's and don'ts

Budgeting do's and don'ts

Agribusiness
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A budget is your operational plan for the year ahead, written in dollars.

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Why budget? Every year I hear "there is no point doing a budget - you can't tell what is going to happen". That is correct, however, if your plan won't work on paper, then it has very little chance of working in practice. Remember, a budget is your operational plan for the year ahead, written in dollars.

Here is my list of do's and don'ts for preparing your budget.

DO

Do take ownership of why you're doing the budget. What does it mean for you?

Do start by thinking about your strategy for the year ahead. Given your current reality, what is it you plan to do?

Do involve the right people with the right information. A budget must be a combination of paddock and office knowledge.

Do start by preparing your forecast stockflows and cropflows.

Do start by preparing your forecast stockflows and cropflows (hint, this is important).

Do base your forecast direct (variable) costs on assumptions made in the stockflows and cropflows. E.g. you can't forecast how much you'll pay in commission next year until you forecast what your sales could be.

Do consider historical overheads, then challenge each one when you include it again.

Do have your loan information at hand to clarify repayment details.

If your first budget shows a loss, or doesn't meet your profit goal, budget another scenario until you develop a strategy that could deliver the desired profit.

Do revise your budget as reality changes. Doing a budget now will have many assumptions. Once you know the actual area planted, growing season, branding/marking numbers etc, do another budget to include this new, important information.

DON'T

Don't do it for someone else. If you don't know why you're doing it, clarify.

Don't copy last year's actuals across. Every year is different.

Don't do a budget without a stockflow or cropflow. They are the foundation of your budget.

Never use last year's direct costs for this year's budget.

Never let a bank/someone else prepare a budget for you. Get someone to help you by all means, however, never hand it over.

Don't rush it just to get 'it' done (it is the process that counts).

Don't budget for a loss. Find a different strategy.

If you need a hand or want another set of eyes to look at your budget, RCS and many other companies are here to help out.

  • David is chairman of agricultural consulting and education company, RCS Australia. www.rcsaustralia.com.au 1800 356 004
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