Proper budgeting allows farmers to estimate their costs and profits for an upcoming production period. A solid budget will help farmers make decisions about their agribusiness as well as calculate their ability to achieve financial goals. These goals can include paying off or reducing debts as well as saving enough to make significant purchases for the farm. Budgeting is vital to completing business objectives because it provides a baseline. Without this reference point, farmers cannot hope to make improvements to their operation.
How Do Successful Farmers Budget?
The following are strategies prosperous farmers employ when managing their budget:
- Set goals. Budgeting should not be about breaking even. Budgeting allows farmers to visualize and achieve goals with a realistic margin. Goals can be short-term, such as producing more than the previous years, or they can be long-term, such as retiring within the next half-decade. Farmers who approach budgeting with a purpose will be better equipped to manage their agribusiness from year-to-year.
- Use budgets for daily management. A budget isn’t a one-and-done deal; it’s a living document that requires nurturing. Farming situations change and budgets should reflect this. Budgets allow farmers to make decisions such as planning for expenditures, making arrangements that will affect the next generation on the farm, etc.
- Make smart marketing decisions. Marketing in farming is not the same as marketing for a traditional office job. Farmers have to make decisions on when to sell crops, grain, etc. to ensure they remain in the black. While many companies approach marketing as a means to get rich quick, farmers use it as a method to avoid going in the red. Agribusinesses operate on thin margins and need to use their budgets to make sales decisions that keep their costs and profits in balance.
Budgeting is an effective part of risk management for farmers. In an industry that is often at the mercy of the weather, farmers need to take command of their budget to monitor the factors they can control. If your farm is struggling to manage its risks, Cline Wood can help. Contact us to learn more about assessing your risks and implementing strategies to mitigate them.
This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting or legal matters are based solely on our experience as consultants and are not to be relied upon as actuarial, accounting, tax or legal advice, for which you should consult your own professional advisors. Any modeling analytics or projections are subject to inherent uncertainty and the analysis could be materially affective if any underlying assumptions, conditions, information or factors are inaccurate or incomplete or should change.agribusiness blog, agribusiness budgeting, agribusiness risk