By Brian Ravencraft
I have talked about business budgets in past articles, but it has been a while. To me, it is always a topic worth circling back around to. I see many agribusiness owners operating without a budget. Sometimes it is a very loose one. It should be no surprise that as an accountant, I don’t recommend this. Businesses of all sizes need to have a budget in place. They need to be realistic and meticulous when creating it. They need to then abide by it, but also revisit it often as the business evolves. This is especially true when it comes to farming and agribusiness. So many elements, such as the weather, regulations, and more can change the financial course of your business and a budget can be a lifesaver when navigating difficulties.
Without a budget you are opening the door to some very large risks and many headaches. Without one, you will most certainly overspend on various elements across your operation. Even if you monitor your cashflow on a daily basis, spending without budgeting for certain needs often gets out of hand very quickly. Before you know it, you could be pulling money from other accounts to cover costs for which you didn’t budget. If you pull the funds from a personal account, you will be crossing another line that we never recommend a business owner approach: mixing personal funds with the funds of your business.
Part of budgeting is planning for cash reserves and savings. Without a budget in place, you likely will not have enough money on hand in the event of an emergency within your business. Cue dipping into those personal funds again. Or you will be facing new debts that usually lead to increased ones. As you can tell, we are painting a pretty grim picture of a cycle of needing money and moving money around that will be hard for you to get away from once it starts.
You owe it to yourself to proactively plan for anything and everything financial in nature and a budget allows you to do just that. This planning can save you so much time throughout any given year. For example, if you have periodic payments due on a variety of things throughout the year, you can plan for payment of those during the budget process. Proper planning cuts down on expenditures that slip your mind or sneak up on you. Planning and budgets pay off in larger spades as well, allowing you to project your annual income as you watch money come into your operation while knowing what dollars are funneling out. You can do all of this thanks to, you guessed it, a budget.
Creating a budget is a very personal exercise for any agribusiness owner. There is no one size fits all model for doing it. Many elements come into play, such as the size of your business, your financial goals and much more. Having an accounting partner aid you in this process is key. Then, having them assist you in sticking to the budget and revising it when needed is also crucial. As always, I am here to help and answer any questions you may have.
Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.agribusinessaccounting.com or www.HolbrookManter.com.