Build Scenarios for Tough Times

For many areas of eastern Australia, a prolonged period of below average rainfall has seen farming businesses experience drought conditions over the past 12 to 24 months. This has an obvious impact on production and income flowing on to local businesses and communities that support these agricultural enterprises. In order to survive the tough times, many businesses may have to make decisions and consider their direction.

Budgeting is not an Exact Science

Most businesses involved directly or indirectly in agriculture are affected by many things out of their control. One of the most common factors being weather conditions. Whilst this does make the budgeting process difficult, it does not make it impossible. Businesses need to be prepared to make decisions relatively quickly. Having a budget in place can help model out what the effects of these changes will be, in particular with regards to available working capital.

Having Multiple Budget Scenarios can be an important part of the planning process for tough years. At the very least, having these models ready to go in the event of unforeseen circumstances can soften the blow.

Scenario Modelling for the Good, the Bad and the Ugly

Within Calxa, there is the ability to create multiple versions of the same yearly budget. The initial budget can simply be copied and renamed, which will give you an exact copy of your first budget. This then enables you to edit key components such as individual income or expenses lines to reflect new situations, without having to re-key the complete budget again.

When naming these budget copies, we recommend that you keep them relatively generic, as these copies can be used for future years within Calxa. Naming them “Best Case”, “Worst Case”, “Good Season”, “Bad Season” are common examples which will be specific enough, yet have the ability to be used across multiple years. Many Calxa users make the mistake of naming these scenarios based on a year, which is not necessary as the year is able to be selected in the Budget Parameters screen. Having a budget version with a year included in the name just leads to confusion and make it impractical for a future year. These budget scenarios may also involve more than just income and expenses. If a complete change of direction or enterprise is being considered, then it may involve the addition or disposal of assets which will need to be modelled out on the Balance Sheet Budget accordingly. Once again, naming these budget versions “Plant Acquisition” or “Plant Disposal” are examples of naming conventions that can then be used in future years. We recommend keeping things as simple as possible.

Tip: Don’t create too many versions of yearly budgets so as not to increase your selection options. This will help when making selections in the reporting criteria.

A Picture tells the Story

A relatively new feature in Calxa is the ability to graphically display the forecasted available funds or bank balance based on two different budget versions or scenarios.

This can be particularly useful when considering the options of diversifying into new enterprise. It can quickly demonstrate whether there is enough working capital available or whether there will be a need for additional borrowings or capital.

A Cashflow Forecast Comparison Chart can help in this decision making process, and will aid in presenting a business case to lenders if additional funds are required for a change in enterprise mix or direction.

Australian agricutlural has historically been filled with good times and bad times. Technology has provided many advances and modelling and forecasting software such as Calxa is just one example. But, this still does not take away the human toll, both physical and mental, on all people involved in this industry that experiences droughts and natural disasters. It is important to have open and productive discussions with advisors, counsellors, support agencies, friends and neighbours and seek out assistance where possible. Remember; the weather is something that you have absolutely no control over. So nurture the business until the good times return.