Start Your 2019 Budget Now

Developing and managing your budget is a rigorous task, both from emotional and practical perspectives. ( Farm Journal )

By Chris Barron, Top Producer Columnist

 

How is your 2018 financial situation finishing up? Were you able to lower your cost of production while improving productivity? What parts of your budget can specifically be attributed to those improvements? How do you measure the success and accuracy of your budget? 

These are obviously difficult questions. But operating without a budget that has specific objectives is like driving down the highway without a steering wheel.

In working with growers on their cost of production analysis, a common challenge is controlling overhead expenses. We include overhead expenses as its own cost category defined as “return to management.” We pull all overhead expenses out of the budget, which identifies costs paid for by a defined profit center. 

{Find three ways to get a handle on the often overlooked and undermanaged line-item expense—return to management at www.bit.ly/ManagementReturns}

For example, if healthcare is paid for by the crop operation, we would allocate the entire cost not only as an annual dollar amount, but also identify it as a monthly, daily and per-bushel expense. Then we can tie these expenses directly to your cost of production. 

Developing and managing your budget is a rigorous task, both from emotional and practical perspectives. Emotionally it’s sometimes easier to not face the facts. There are probably areas within your operation where expenses exceed what’s acceptable. If you look the other way, maybe it’s not so bad? Or it requires a difficult conversation with a spouse, relative
or employee. 

Sometimes you need to adjust priorities. None of these options are fun, but facing these challenges head-on and making the necessary changes can have a huge impact on your bottom line. 

A Practical Solution. A budget is the total sum of money set aside or needed for a purpose. This is not to be confused with your cash flow, which is the total amount of money being transferred into and out of a business. Your budget should help you determine acceptable/maximum levels of expense for each category, whereas your cash flow is just the flow of money throughout the year. Both cash flows and budgets are important and serve different purposes. 

Now let’s talk constructing a budget. First, clearly identify your specific expenses. Next, assign an annual maximum/acceptable expense. Finally, break those expenses down on a monthly, daily and per-unit cost. 

Once you have your budget assembled, monitor the numbers quarterly. There will likely be some categories that need tweaking, but the numbers will get better as time goes on. If you measure your budget quarterly and monitor changes, you will become much better at forecasting expenses in the future. Remember, if you measure it, you can improve it!  TP 

 

Chris Barron is director of operations and president of Carson and Barron Farms Inc. in Rowley, Iowa. He is also a national financial consultant for Ag View Solutions. 

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