Budgeting Has Never Been More Important

Recently several farmers have told me that “there’s little point budgeting at the moment as everything’s changing so quickly”.

In the last 12 months the amount of money being turned over by dairy and arable farms has, in some cases, nearly doubled.  The three “f’’s” – feed fuel and fertiliser have seen stratospheric price rises which means that we are now looking at invoices of c. £30k where they used to be c. £8k, just for one load of fertiliser.  Supply issues mean that delaying a fertiliser purchase may leave you without enough when you need it. 

This has a significant effect on your cashflow and requirement for working capital.  Knowing what this effect is and projecting the lasting impact on your business is critical.  Banks will take a far more favourable view when more credit is required if this has been predicted well in advance.  Moreover, the effect on your suppliers’ and contractors’ businesses is likely to be greater than on yours, meaning that we are seeing much shorter payment terms.  Delaying paying those big bills until you can afford them might not be an option. 

We are also seeing farmers battling with the age-old “bulk versus quality” dilemma when timing silage cuts – with some opting to make later silage to reduce contracting costs, accepting that winter purchased feed costs will be higher (whilst hoping prices will ease…).  But this shouldn’t be a dilemma if both scenarios have been budgeted! 

Further down the line, many businesses will see a cash surplus later this year or early next year as output price rises filter through.  The temptation will be to make short-term decisions to reduce tax liability.  But do you know what the longer-term impact of these decisions will be?  Budgeting forward should take place before making any decision of this nature.  Can you afford that extra Hire Purchase agreement if your output prices fall back to a more “normal” level?  We must assume that higher input prices are here to stay, and budget for lower output prices – what goes up must come down!  Working with your accountant now to assess the likely tax liability will help the budgeting process and assessment of any tax-reduction strategies. 

For assistance with making a start on budgeting your business forward, contact Tom on 07496 760242  or e-mail tommalleson@fcgagric.com