Start a Budget for your Farm: Set Yourself for Long-Term Success
You’ve been hearing chatter from ag forums that you should set a budget for your farm, but you’re not really sure where to start. It’s hard to even think about budgeting when you’re not sure what you’re even working towards. However, many farmers find that setting a budget for their farm is helpful to keep track of how they’re financially doing throughout the year and hit quantitative and qualitative goals. We’ve put together a few tips that help outline the importance of a budget and how to implement one.
Set a Goal
The first thing you should do is set a goal. This gives you a purpose for creating a budget for your farm. Without a purpose, it’s hard to know what to work towards. Your goal can be anything from making room for the next generation, buying farmland next year, or investing in a new grain bin set-up. Having a goal will guide you in your decisions throughout the year. If something doesn’t align with your end-goal, then you may need to reconsider what it is that is causing you to fall off course.
Make the time to study your financials and set a budget. This step is easily overlooked for a lot of reasons, but we get it! It can be overwhelming to sit down and comb through your finances and understand how you can budget your money throughout the year. Although it can be hard, we highly recommend it. Establishing a budget so you can continue on the path to hitting your goal.
Criticize your budget! After going through your initial budget, go through it again and see where you can cut costs. You might be able to decrease your seed cost by 2 or 3 percent if you switch to a different brand. Or, see if your landlords you rent from are willing to work with you on rent. Take each line item on the budget and really think about how you can cut costs to save you money, without taking away productivity.
Daily management. Now after you create your budget, don’t let it sit on your shelf for the next 10 months. The best farm managers are looking at their budgets daily to see if finances are still on track and goals are going to be met. The budget should be a part of your daily work to ensure the best success.
Grain Marketing Plan
Part of a good budget is having a stellar grain marketing plan. Do you know what your cost of production is? Your break even? What you would need to make a considerable profit? Talk to your favorite grain broker about mitigating some risk by purchasing some options to make sure you’re hitting a profitable number.
If your not quite sure what is the going rate for rent, or how to plug in some of your budget numbers, Iowa State University has a great tool that many farmers use for up-to-date information. You can find it here.
If you have questions on selling farmland and how that might affect your cash flow, feel free to give David a call.