Budgets – why do we need them?

Working without a budget is like swimming in a rough sea with no life saver – you’re sure to drown, writes Susan Pletts.

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Farmers and all stakeholders in a farming enterprise, especially the financial institution funding the operation, need a budget.

Take a look at a failed project and you’re sure to find a business that hasn’t stuck to its budget strictly. To budget you need to understand your business and the financial requirements of what you intend to produce.

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It’s about knowing your income and expenditure. This includes crops, livestock and value-adding. If you’re new on the land and budgeting for the first time, then get help. Once you’ve drawn up a budget, you can use this information to create a “cash flow” document, which shows you if and when you need more finance.

To create a budget, you need:

  • The size of land for cropping or the number of livestock units produced for sale or slaughter.
  • Input expenses – the cost of seed, fertiliser and chemicals, water/irrigation, harvesting, and so on.
  • Projected selling price of your produce.
  • Personal living expenses.
  • All hire-purchase instalments for vehicles, equipment, office furniture and even personal items like a fridge or TV. The farming business has to pay for these.
  • Bank charges and interest.
  • Tax, including VAT.
  • Get it all down – remember that unexpected expenses can cripple your business. 

Points to remember when it comes to working with a budget:

  • Build your business before your house.
  • If you’ve received a grant for your business, don’t spend it on a luxury vehicle, or an overseas trip to find markets for produce you don’t have yet!
  • Money received for sold produce isn’t available for unplanned spending. It should only be spent according to your budget.
  • If your planned production can’t cover budgeted expenses, don’t carry on with that production. Expert advice is available – use it to find out what is profitable in your own farming area.

Budgeting for group projects

Finally, a common reason for group projects breaking up is when the members disagree over money and what should be done with it.

Co-operatives are group projects and while a co-op’s board of directors usually has the authority to do the budgets, my advice is to get group approval for the budget at a special general meeting. This will avoid future conflict and strengthen support in difficult times.

Susan Pletts is the owner of Wanyuka Consultants in KZN, which provides various services, including farming training and mentorship for emerging farmers.