Never Has there been a More Important time to Budget.

This is a subject close to my heart and I don’t apologise for banging on about it.

I will demonstrate with three very different examples of the positive benefits of budgeting in the last six months with clients

1. Large Taxation Saving. – Most Autumn Calving Dairy Units with a March year end will produce most of their profits in the Dec – March period when production is at a maximum. The last financial year to March 23, saw an even bigger swing to increased profits as rising milk production in the last six months to March 23 coincided with a significantly rising milk price. 
   
   With careful budgeting and update financial information we foresaw a lot of this increased cashflow and profits 3-6 months ahead which gave one of my clients time to change its business structure to a company from a partnership and thus made a significant taxation saving.
   
   Now a company is for life not just for a one off six month period. We also have a three year plan in place increasing output and reducing costs, so the company route was chosen for the longer term profitability and tax planning reasons with the input of the client’s accountant.

2. Confidence to Invest Now- I just did a budget last week for a client where he said before we did it, that he thought he would need a higher milk price than at present to carry out the planned investment he needed to do in the next 12 months. He was reluctant to commit all his capital to all the projects planned now. 
   
   After doing the budgets and stress testing them, we concluded he could do all the investments and have 2ppl to spare in a cashflow surplus. Armed with this information now allows investment to be made earlier to realise the benefits earlier. The next day feed and fertiliser prices were for the next 12 months as it was the right thing for the business and cashflow.
   
   You might think that this business owner should have a better feel for his business finances and not be that far out on his gut feel?
   
   With very volatile prices of feed, fertiliser, Interest rates, electricity prices, milk and corn prices all moving in different directions at different times, never mind what the farmer can control on the ground in terms of management decisions short and longer term, it is quite a juggling act!

3. Early Warning Signals – For a business exposed to rising interest rates on high debt levels coupled with loosing land and having to buy in extra replacement forage, doing a budget recently has been crucial to quantifying a cashflow shortfall and then highlighting areas in the business which can be addressed to counteract the magnitude of the cash deficit.
   
   Better to know 12 months early and plan to mitigate the shortfall now rather than letting things get progressively worse and burying your head in the sands. As a result this business has turned a negative cash shortfall into a positive focus on improving areas of the business which will make the business even stronger when interest rates abate and suitable replacement land is found to give the business longer term stability.

Make market volatility your friend and embrace the opportunities. Use the financial tools at your disposal with the help of your farm consultant or financial adviser. Contact Gerard at gerardfinnan@fcgagric.com or your local FCG Consultant regarding financial planning or budgeting.