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Tips for farm budgeting and planning

Having a budget for your farm is a great way to plan and track the financial performance of your business. Creating one can be simple, you just need to know where to get started.

3 minute read

The financial side of things can sometimes take a back seat to the daily challenges of running your business. You may have to deal with weather extremes, fluctuating commodity prices, seasonal labour shortages, or the demands of environmental compliance. 

Dave Handley, BNZ General Manager of Agribusiness, says: “It’s when you’re dealing with issues like these, along with all your usual daily demands, that having sound financial management practices in place is so important.”

It’s not uncommon for farm owners and managers at different stages in their farming lives to need some guidance on how to manage cash flows and budgets, as there can be times when a drop in cash flow meets a sudden rise in costs, and a farm’s viability can take a hit.

“It’s not about obsessing over spreadsheets,” says Dave. “It’s about having some clear financial goals for your operation, and a plan for achieving them. At the core of all, that needs to be some sort of budget.”

Things to include in your farm budget

A budget focuses on estimating your income and expenditure for the 12 months ahead. Things such as:

• income from different sources (e.g. milk or stock sales)
• your farm’s working expenses (e.g. power, fuel, repairs, and maintenance)
• interest, fees and lease payments
• loan principal repayments
• planned capital expenditure (e.g. stock, vehicles, or equipment) – it’s also worth considering different ownership models, i.e. leasing vs buying
• future tax payments
• your personal drawings or shareholder remuneration
• 3–5 year savings goals and ideal cash reserves (a safety net for more challenging seasons).

Dave points out that there’s no hard and fast format to stick to. “Do what works for you, so long as it’s realistic when compared to your financial performance in past years. There are plenty of online budgeting tools to choose from that make this a lot easier. BNZ has partnered with Figured to offer an online farm budgeting tool to our customers at discounted rates. And remember, if you need a hand, our team of Agribusiness Partners can always provide feedback.”

The benefits of having a financial plan

By creating a farm budget, you’re also generating an accurate, real-world view of how your year will pan-out. Of course, things can and will change, but it gives you some key markers to hit over the next 12 months, as well as a checklist to measure your farm’s financial progress against.

Benchmark, compare, and prepare

As Dave says, “Having a budget means you can sit down at the end of each quarter to check your actual performance against what you planned. This can help you identify shortfalls, work out what’s causing them, and address them before they become larger problems. Obviously, having a budget won’t stop the bad things from happening, but it will provide a degree of financial preparedness and resilience to help you deal with unexpected situations.”

There are other benefits too. Budgeting enables you to benchmark and compare your performance against industry averages, see where you have room for improvement, and test how resilient your business might be to a downturn.

Have better conversations with the bank

Having a financial plan for your farm also helps when you’re talking to the bank. Not only does it demonstrate you have a good handle on your business’ finances, it gives the bank a clear idea of your financial needs, and helps them work out how to best support you. Importantly, it also helps them assess whether you have the cash flow to service your debts. As Dave points out, “That’s where your budget also becomes a tool to develop a stronger relationship with your bank.”

Your farm budget can also put the spotlight on debt levels, which helps when you’re talking to the bank. As Dave says: “Having greater knowledge of your debt situation means our Agribusiness Partners can better structure finance in ways that help you minimise your interest and fee payments wherever possible.”

See the bigger picture

At the end of the day, a budget isn’t just about being better equipped to raise finance or better manage debt. It’s about the bigger picture – having some clear financial goals for your operation, and a plan for achieving them.

Many industry groups, like DairyNZ and Beef+Lamb, offer budgeting tools and workshops to help you understand the cash flows and financial performance specific to your sector. These can help you evolve your business thinking and get to know how others are managing their financials too. For more information, get in touch with your nearest BNZ branch, your BNZ Agribusiness Partner, or your BNZ Business Banker.

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The information in this article is provided for general purposes only, and is a summary based on selective information which may not be complete for your purpose.  To the extent that any information or recommendations in this article constitute financial advice, they do not take into account your financial situation or goals and is not intended as personalised financial advice. While BNZ has made every effort to ensure that the information provided is accurate, you should not rely on this information to make any financial decision without first having sought advice specific to your circumstances from an authorised financial adviser. Neither BNZ nor any person involved in this article accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this article.

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