Year End Budgets
Budgeting is essential whatever industry you are in. Dairy farming is no exception.
Knowing how and when cash flows through your farming business is crucial for any decision making. Dairy farming is a volatile industry in which the cash flow is rarely regular throughout the year, or year on year. Erratic weather, unpredictable biological processes and fluctuating costs can all have a significant impact on cash flow. It is so important to budget irrespective of whether it’s a good or bad year. In a good milk year, a responsible farmer should look to build up a cash reserve and invest in any farm improvements. Subsequently, this provides something of a safety net for the poor milk years, when meeting expenses is the only priority.
The best budgets are based on solid, accurate information. This is why it is so important to constantly monitor your cash flow, in every aspect and operation of the business. By analysing the trends of previous months, years and situations, you can prepare a budget which is far more realistic, flexible and accommodating.
Why do we budget?
At Grasslands, we put a lot of time, effort and thought into our budget. We know that all the hard work we put in at this early stage will certainly pay off later in the year.
Budgeting is so crucial because it provides us with clarity and direction. Through the process of budgeting, the entire Grasslands team is made aware of the resources available, their quantities and potential upcoming shortfalls. Such information is hugely helpful when working together to establish clear and realistic KPIs (Key Performance Indicators), which subsequently provide employees with direction and guidance in their day to day activities. There is little point in committing to targets which we cannot feasibly support financially.
Within the Grasslands operational model, budgeting is also a useful way of granting the individual farm managers greater autonomy. We like to delegate a lot of the budgeting to them as we honestly believe such action gives rise to better decision making. They are the people working in that specific environment everyday and so are obviously best placed to forecast key budget factors, e.g. total grass growth.
Our approach to budgeting
For a dairy farm, the process of building a budget begins with the finances relating to feed and forage. At Grasslands, we produce a 12 month projection of our total grass growth on the farm. The Grasslands system of keeping cows outside grazing year round, means that this projection is crucial for our operational plans for the year ahead. To establish this figure we simply calculate the averages of previous years.
Also contained within the feed and forage budget is the forecast of our cow numbers and their accompanying resource demands. This projection is necessary for us to determine an estimation of the cow’ requirements. Armed with this knowledge, we can properly identify, and prepare for, any projected shortfalls throughout the year. It is far better to learn of a potential problem early on, when adjustments can be made and solutions found. Failure to prepare only causes extra stress later in the year.
With the feed and forage budget established, we channel this data into a cash flow projection. This document highlights all of our inputs and outputs for the budget year in one easily accessible place. Throughout the year, a finance report is then generated each month. This report in turn informs the financial review each individual farm manager undertakes, the results of which are communicated back to the landowner. With all the inputs, outputs and cash flow projections laid out so starkly, it is easier for a farm manager to accurately assess the current state of the farm in comparison to expectations.