Often, we hear ‘Why budget – you can’t tell what will happen’. That’s correct. However, if the plan fails on paper, then it has little chance of working in practice.
Why budget? Every year we hear ‘there is no point doing a budget – you can’t tell what will happen’. That is correct. However, if your plan won’t work on paper, then it has little chance of working in practice. Remember, a budget is your operational plan for the year ahead, written in dollars.
Here is our list of dos and don’ts for preparing your budget.
- Take ownership of why you budget. What does it mean for you?
- Strategise for the year ahead. Given your current reality, what do you plan to do?
- Involve the right people and information. A budget must combine paddock and office knowledge.
- Start by preparing your forecast stockflows and cropflows (hint, this is important).
- Base your forecasted direct (variable) costs on assumptions made in the stockflows and cropflows. E.g. you can’t forecast commission costs until you know your planned sales.
- Consider historical overheads, then challenge each one when you include it again.
- Have your loan information at hand to clarify repayment details.
- Revise your budget as reality changes. Doing a budget now will have many assumptions. Once you know the actual area planted, growing season, branding/marking numbers etc., re-budget to include this new detail.
- Do it for someone else. If you don’t know why you’re doing it, clarify.
- Copy last year’s actuals across. Every year is different.
- Do a budget without a stockflow or cropflow. They are the foundation of your budget.
- Use last year’s direct costs for this year’s budget.
- Let someone else prepare your budget. Get help by all means, but never hand it over.
- Rush to get ‘it’ done (it is the process that counts).
- Budget for a loss. Find a different strategy.
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