5 Consideration Points When Budgeting for Your Farm
Following our previous blog on utilising farm management information, we list here the important considerations regarding putting together a budget for your farm.
- Price Volatility
Price volatility will continue to be an issue for farmers and it is important to assess how changes in prices will affect future cash flows and whether there is anything that needs to be done to mitigate the risk of price volatility.
- Collaboration with Neighbours
Assessing whether the farming business is utilising its plant and machinery to its full capacity is a worthwhile project. It is important to understand the depreciation cost in your accounts and whether it is realistic. Sit down with your accountant to establish the useful life of machinery and the expected return on investment.
If the machinery and kit you have purchased is surplus to requirement, then collaboration with neighbours is an opportunity to share machinery costs, storage and labour.
- Farm Asset Potential
Evaluating the potential of all farm assets could identify diversification options, or projects for the next generation to take on. If farm buildings are surplus to requirement or redundant, then there may be financial benefit for change of use.
- Reviewing Input Prices
Review the input costs for the business over the last 12 months and compare prices with a buying group or other competitive sources. Regular checks will ensure you are not overpaying and assist with the profitability of the business.
If diversification is in the long-term plan, then preparing a business plan and strategy will assist decisions with regards to spend and timing of projects. Banks and loan providers will want to see up-to-date accounts and management information if you are looking to borrow and will want to see a budget for the new enterprise. Having these available and ready will ensure the process moves forward in a timely manner.
VAT and tax implications do need to be looked at carefully when considering diversification projects and should be included in the business plan and strategy when preparing. Whether VAT can be recovered on a project could be a deciding factor as to whether it is worthwhile pursuing.
For help planning your farm budget, please don’t hesitate to get in touch with our LHP farming specialists on Let’s Talk.