Use A Budget As A Tool On Your Farm

Making a budget is an important part of every farmer’s financial plan. If farmers learn to make and use a budget, they can:

– Earn more money from crops and livestock

– Determine whether they can afford new tools or equipment, or pay other expenses

– Determine which crops will be the most profitable, and how much of each crop to grow.

– Identify potential financial problems in advance; for example, places where too much money is being spent.

– Set reasonable production goals for each farm product,

– Accurately calculate costs of production for each product

– Estimate the break-even price and net return needed from each product

– Choose management strategies to help achieve production and price goals

– Compare the returns made from each farm product, to better assess and plan for the profitability of the whole operation

– Quickly gather important information for business planning and loan applications.

Any budget can be presented in one of two different accounting styles:

Economic accounting which includes cash or numeric values for all inputs and outputs, including operations and transactions that are not cash-based, such as use of farm-raised feeds for livestock. Economic accounting works best for enterprise and whole farm budgets and is often useful for partial budgets.

Financial accounting which lists only inputs and outputs that require actual cash transactions. Financial accounting works best for cash flow budgets and for partial budgets.

Economic accounting creates a better, more complete budget, especially if you are developing an enterprise budget. Also, if you start with economic accounting, it is very easy to pull out the basic financial accounting numbers when you need them.