Gone are the days of running your business without an enterprise budget or guessing your way through farm budgets. Every farming business should have a structured enterprise budget in place as this not only serves as a roadmap for the financial health and success of your operation, it also gives you a clear idea of how your business is growing.
Grain SA economist Johan Teessen shares the key components of enterprise budgets, why they are so essential to the sustainability of any farming business and more.
Budgets depend on the types of commodities
Did you know that enterprise budgets vary depending on the type of commodity or livestock farmed with?
Teessen says, “Setting up the enterprise budget will differ if you are a grain producer, a livestock producer or if you are in agriculture in general. When we look at a grain producer’s budget, we mainly focus on the yield and how much the market price would be and input costs.”
The episode also features key components that feature in an enterprise budget. “We have four components, the first is income, variable costs, fixed costs, and at the end profit and loss. Other budgets may have overhead costs or living expenses,” Teessen explains.
You may be tempted to guess projected financial outcomes but Teessen explains that this practice is dangerous. “Record-keeping and historical data are those underutilised yet important processes that people forget about. The accuracy of an enterprise budget relies on the information you put in.”
In this episode, Teessen also discusses:
- How to get your budget accurate;
- Common challenges farmers struggle with when it comes to budgets and how to overcome them; and
- Understanding break-even analysis.
Want to know more? Listen to the full episode of Farmer’s Inside Track.
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