Farm Ireland

Sunday 21 January 2018

A budget is the key to better management of your finance

Ciara Jackson

Research suggests that only 10pc of farmers prepare any form of financial budgets or farm business plans. Often, the notion of preparing a budget causes fear, stress and panic. Is this a fear of the unknown? It really doesn't need to be.

A budget can be as simple or as complex as you choose. The process can be as basic as drawing a line down the middle of a page, listing all income on one side and all spending on the other.

But if so few farmers prepare budgets, then why should you bother? A wise person once said "if you can't measure it, then you can't manage it". In other words, you must be aware of your financial commitments and when they occur so that you are in a position to plan for them. Banks generally request budget information as part of the loan application process. A well-prepared budget covering all future income and costs should help support your business case.

Some practical tips for preparing a budget include the following:

•Use a format that works for you, it can be paper or spreadsheet-based.

•Decide whether to prepare the budget on a weekly, monthly or annual basis.

•Set time aside to prepare the budget, when you are free from distractions.

•Keep financial records orderly -- it makes life easier.

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•Retain all old bills, receipts, statements and cheque book stubs so that you can identify all income and costs. Remember, a household budget includes ALL the bills that are associated with the home.

•Be honest with yourself and be realistic in the assumptions that you make.

•Include seasonal fluctuations in costs and income, such as Christmas, family occasions, back to school and so on.

•Include a contingency amount to cover the unexpected.

•Review your budget on a regular basis and update it with a stress test and ask 'what if' questions around key cost and income items. For example 'what if mortgage interest rates rise, how much will my repayments increase by?'

Ciara Jackson is a manager at Grant Thornton's taxation unit

Indo Farming