By Joanna Lidback, Business Consultant
It’s been a few months since we’ve started working more closely with our members developing budgets for the year. We’ve learned a few things, clarified a few things, and wanted to share a few things.
First, why are we doing this?
There are many great business reasons to do a budget. From tracking spending to facilitating discussion, we captured ten of them in this blog post
Additionally, developing budgets will help our credit shop be more effective and efficient as they work through line of credit renewals. With everyone on the same page, our credit staff can match the best tools and resources for our members’ needs. It will also make for a more efficient annual visit, by identifying all of their needs once.
“An ounce of prevention is worth a pound of cure.”
While the milk price forecast may have improved for 2019, it’s still helpful to identify any shortfalls ahead of time and plan accordingly.
A budget is a road map!
If we think of a budget as a road map, we know that real-life driving has unforeseen conditions not on the map. For example, there may be road construction, an accident, or even inclement weather. In such a case, you have to find another way to go. The same can be said for a budget. The estimates and calculations are based on assumptions made at the time the budget is created. These can change, and accordingly, you’d need to make new plans for the budget. Revisiting the budget periodically throughout the year and using new or better information to show the way forward is helpful, especially in this era of line-by-line scrutiny for finding profits.
The milk price changes constantly – how can I plan for that?
It’s true that milk price forecasting is not quite as easy as it used to be. We used to look to dairy economists to tell us what the forecast would be for the next year in November or December and we could rely on it being very close. As we have more outside influences on our milk price, that has changed. Many economists now do a monthly or bi-monthly estimate. While that may complicate an annual projection, a good exercise would be complete “sensitivity analysis” in order to test the budget to see what happens if the milk price drops or jumps, or if there’s an interest rate shock, or an oil embargo.
Knowing is half the battle.
Being a farmer requires many different skills sets from animal husbandry and growing crops to more and more, managing people and finances. Using budgets on a regular basis may be new for some, and old hat for others. The more practice you get looking at your numbers through budgets as well as actual results, the better you will be at driving profitable decisions. If you’re a member of Yankee and would like help creating a budget, reach out to your loan officer or local office for more information.