Business Budgeting and Forecasting

With the significant increases in grain prices, fertiliser, feeding, fuel, etc over the past 12 months or so financial budgeting and forecasting has never been more important.

Some of the main benefits of budgeting and forecasting are:-

• Enables identification of potential cash flow issues, giving you the opportunity, where necessary, to arrange additional borrowing, payment plans, etc.
• Estimate potential annual profits and in turn potential tax liabilities, giving you the opportunity to review your tax position and identify ways to maximise tax efficiency, such as making pension payments, bringing forward capital expenditure for allowances, etc.
• Identifies areas where possible savings can be made.
• If you are looking to renew borrowings / take out borrowings your bank may look for this information as part of the application process.
• Assist with the management of input costs.

With the majority of famers keeping their records on software following the introduction of Making Tax Digital it’s never been easier to prepare budgets, cash flows, etc and then compare to actuals throughout the year to keep track of where the business is at financially. Keeping financial records digitally allows business owners and their accountants to keep right up to date with how well the business is trading with more information available to help prepare future budgets and compare to previous budgets – certainly a huge step up from the old fashioned cashbooks! There are various software packages available, such as Xero and Quickbooks to name two, which are continually developing to keep pace with the changing requirements of business owners. New software specifically designed for budgeting is also emerging.

It is always important when preparing budgets and forecasts to be realistic with the values, although with no crystal ball available this can be difficult, as we are all well aware of the existing variables. Sometimes it can be useful to prepare two or three forecasts to account for different scenarios. - for example, different grain or livestock prices – as this can help to highlight the best, and worst case situations.

As well as preparing forward looking reports it can also be useful to look at management accounts on a monthly or quarterly basis, comparing these to your budgets so that you can act on any significant variances, if necessary adapting plans going forward.

We are seeing more and more clients, not just farmers, come to us asking us to help with the preparation of forecasting reports to assist with their business decision making. If you feel the preparation of budgeting reports will benefit you and your business please get in touch with myself or your usual Rennie Welch contact.

Ross Tinlin CAT | Ross.Tinlin@renniewelch.co.uk