It’s the details that make for accurate budgeting and forecasting on your farm operation, just as in any business, says Kevin Gamble of BDO Dunwoody in Portage la Prairie.
“First you need to stop and think about what kind of information you need for your production, and start from there,” he told producers at Ag Days in Brandon.
There may be a few stragglers using the old pen-and-paper method of tracking expenses, revenues and profits, but Gamble said free software is available. Manitoba Agriculture, Food and Rural Initiatives offers a free online tool, as does the University of Idaho.
When financial planning, Gamble recommends creating forecasts for average, above-average, and below-average conditions, as well as worst-case scenarios.
“We find that lenders look very favourably on farms that use forecasting budgets and plan for different situations,” he said.
The information you bring to your accountant at the end of the year isn’t enough to create a detailed budget or forecast for the year ahead, he said. However, your accountant can help you set up the tools you need to improve your record-keeping and forecasting.
“One of the most important steps to success is knowing your cost of production,” he said. “Spreadsheets are a powerful tool.”
Ideally, you want to be looking at your forecasts and budgets on a monthly basis, updating and verifying as you go, he added.
“This isn’t something you should be looking at once a year,” Gamble said. “I think profitability can be increased by any sort of planning and forecasting because you get a better handle on you costs. And if you know your historical costs, you can compare them to industry averages and you can see where you might be falling short.”