Building a Budget: Where to Start

Budgeting is purposefully reviewing and estimating our costs, income and overall cash operations for your farm or your business. If you're new to budgets, January is a great time to begin the process.

We frequently reference a whole or partial budget. A whole budget considers the whole farm including every single income item to every single expense to loan or check that's moving through the business. Conversely, a partial budget examines a specific area instead of the whole operation. As an example, you might want to explore your crop area instead of your livestock area in a partial budget.

In an ideal world, everyone would budget on a monthly basis. Twelve times a year, we'd look at our cash ins and our cash outs, comparing what we budgeted to what we actually spent. Whether it's repairs or seed expense, we're taking a look at it. Sometimes, that gets a little complicated. We can begin budgeting at a less frequent cadence but monthly is the goal.

Budgeting Basics

Start with what you know. Look at the big picture. Consider all your income and expense sources and fill in the major categories that you know. Major categories might be seed expense or all of your repairs. Don't feel like you need to break down every repair category. If you're keeping track of your repairs for every tractor or every truck on the farm, include all repairs into one category to make your life easier or say, "In repairs, we'll spend this much each month or each year."

Be realistic. When developing a budget, be conservative, especially for the first time. What do we mean by conservative? Don't budget for $1 million in income when you're really nowhere near that amount. Be realistic about the income you think you'll make and be realistic about the expenses that you're tracking. Don't work to have a deficit in your budget. Again, make sure that you're realistic in your budget.

Don't be afraid to ask for help. Budgeting, record keeping and taxes are all things that are important to your operation and they're also things that you can ask for professional help. Professionals know a lot about budgeting and can help you. From our perspective, and what you will learn in budgeting, is that if you're taking the time to budget, you're taking the time to make your operation even better than where it's at today.

Budgets aren't set in stone. It's normal to return to your budget and tweak it. For businesses that budget monthly, we frequently refer back to the budgets. That's common. It's really about creating a roadmap. Your budget is a roadmap and that's the way you need to treat it. Sometimes a turn looks a little different than your initial budget. Adjustments are perfectly fine.

It's worth taking the time to take a look at your numbers and develop a budget. Whether it's a whole budget or a partial budget, sitting down and looking at your numbers will help improve your business in the new year.