Seasonal budgets are important for farming businesses. Running an agri-business is not always easy. Not only are there the long hours and the 24/7 vigil over livestock and attention to paddocks. In addition, there are financial fluctuations throughout the year. External influences like droughts and floods. Let’s not forget the sometimes problematic succession planning.
We don’t have answers to many of these challenges but we are experts at how to plan the finances for the seasonal aspect of farming and help you with seasonal budgets.
Seasonal Budgets help with Making Decisions
There are two things you need to get a grip on with regards to the numbers so you can make informed decisions:
- A solid budget will set the foundation to painting the picture on where the income is coming from and more importantly when it can be expected.
- An accurate cashflow forecast will help predict the point when the cash hits the bank. This is paramount to keeping an even keel and ultimately to survival.
For many farming enterprises, their seasonal peaks and troughs in trading will not have any relationship to their financial year. Herein lies the challenge for the reporting. Many businesses operate on a July to June financial year (or April to March in NZ). In many cases, this period will have no meaningful relationship to the seasonal aspects of the business. Whilst that is acceptable for regulatory reporting bodies like the ATO (Australian Taxation Office), in reality this is not practical for the task at hand.
Seasonal Businesses are Different
Just take, for example, a winter cropping enterprise in southern Australia. At this time of the year, many business owners in this industry are sitting down and trying to forecast numbers for the next 12 months. In many regions, this is an absolute priority. It is so important to liaise with your lenders to try and determine working capital requirements. This is even more important, after maybe experiencing poor seasonal conditions in the previous year.
In this particular industry, a large percentage of your expense is incurred prior to the end of June. In contrast, the majority of your income will appear in the next financial year. So, from a financial year perspective, it is quite often the case that the expenses reported on the financial statements relate to income reported in a different financial year.
So where to start?
Here is our recommendation on how to tackle seasonal budgets.
- Prepare an Annual Profit & Loss Budget (outside your statutory financial year). Plot your expected income and expenses. Often a large portion of the expenditure occurs prior to June in the current financial year whilst the bulk of the income is received in the next financial year.
- Don’t forget to prepare a Balance Sheet Budget to allow for such things as capital requirements, loan repayments and owner’s drawings.
- Formulate a 5-year Budget. This is not only helpful for your own planning but it may be a requirement by your bank if you are seeking funding or any Government assistance.
- Now based on this ground work you can prepare a Cashflow Forecast to track the cash position at any given time. Predicting your cash position is imperative if you want to maintain control and make informed decisions about your existence.
Using Calxa for Seasonal Budgets
Basic budgeting can be achieved in your MYOB accounting software. Accounting software usually focuses on statutory compliance and doesn’t always have very good tools to track your cash. Having an add-on like Calxa complements your accounts.
The pain is taken out of seasonal budgeting for various reasons:
- No restrictions to the financial year
- Ability to budget up to 10 years ahead
- Time-saving shortcuts and wizards beat a spreadsheet any day
- Complicated cashflow forecasts are as easy as clicking on the report you want
Getting Assistance when Times are Tough
Whilst it is important to manage your business and seasonal budgets are part of this. It is worth noting that for regional based farmers, there are a number of drought assistance packages available, from both federal and state governments. Start with the Australian Government Department of Agriculture.
Many of these programs require budgets and business plans for up to five years as part of the application process. The Calxa team is more than happy to assist with getting started for those that find themselves in this position. Or, simply get in touch with your MYOB Certified Consultant or a Calxa Accredited Partner if you need a hand with the preparation of these financial reports.