Farm Budgets
/You’re stuck on the side of the interstate, steam pouring from the hood of your truck - and you’ve got a trailer full of chickens, which are now sitting in the sun. You knew the truck’s radiator had issues, but you didn’t think it needed fixing just yet. Now, instead of a $1,200 repair, you’re in serious trouble. How did you get here? Was it simply that one decision about when to fix the radiator, or was there more to it?
Creating An Informed Farm Budget
Budgets can set you up for success, or for tragic failure. That’s because you can make a budget say anything you like: You can make a project show great potential, or seem doomed to failure - based on whether you were honest with yourself when you created the budget.
Good farm budgets strike a balance between two key elements: your goals, and your reality.
Goals for Farm Budgets
How will you know what success looks like, unless you have a target to hit?
For example, there is a big difference between, “I want to sell a lot of chicken,” and “I want to sell 1,000 chickens.” The first sentence is ambiguous, while the second sentence has a clearly defined goal.
Setting a goal is also is a great way to establish benchmarks (referred to more formally as “Key Performance Indicators”), which let you pause at certain intervals in order to measure your progress towards the goal.
Goals come in all shapes and sizes. Here are a few examples which may apply to your farm:
I will raise 1,000 chickens in one season.
I will increase my annual net profit by 5%, without scaling up.
I will brew beer with only local grain.
I will keep my off-farm grocery bill below $200/month.
I will finance a tractor.
I will decrease the time spent moving chicken tractors by 10 minutes.
The pursuit of any goal also means you will have to address the project management triangle – good, fast, or cheap – which we learned about in 02 - Farm as a Business. The balance of those three factors will affect your budget for the year.
We also discussed four different ways to create a budget and track your expenses, in 01 - Start a Farm.
Realities For Farm Budgets
For Beginning Farmers
No matter what the project, no matter how much experience you feel you have or what you think you know, you will be better off if you plan for the worst-case scenario. A wise farmer once said, “Whatever you think it’s going to cost, double that - and then add 50%.”
More new farms have been lost to optimism bias – the tendency to think everything is going to go perfectly – than have been ruined by drought, disease, or pestilence. Here’s some advice on how to avoid that overly positive mindset: When you are starting a farm, start small; take copious notes; remember to review those notes; compare your notes with others; make decisions based on those notes; and then take more notes.
How do you plan to balance your budget around the philosophy of Ikigai? (The concept of Ikigai was described in the Start A Farm episode…)
For Experienced Farmers
Your budget can only be as good as the records you keep. You already know that farming is about playing the long game, improving your practices year after year, and “planting today with tomorrow in mind.” If you are not doing a good job of tracking your money – where it is going, and where it is coming from – you will never have a handle on your farm business. A budget is a tool, just like a rake or a tractor. Learning to use that tool to its full effect will open doors you didn’t know were there.
The faintest ink is better than the sharpest memory.
Budgets Without Reality
When you consider a budget’s deeper meaning, you’ll see that it is a list of your financial expectations, hopes, and dreams. That should give you even more reason to be realistic when creating your budget – which, as we pointed out, can say anything. For example: Are you going to have a record year of chicken sales? Of course you are – your budget requires it! Are you going to locate a source of feed costing half what you currently pay? Sure, anything you want…
It is human nature to imagine best-case scenarios, leading to the outcomes we wish to see. That is why the universally-accepted advice about farming is: start slow, start small, and let your hands-on experience be your guide. There is nothing you can read in a book, watch on a YouTube video, or see on a blog, that can prepare you for your version of farming. You have to make your own path.
Budgets Without Goals
Budgets without goals are just financial statements; they show only the current state of affairs, or the simple cost of doing business. Without goals there is no direction, no narrative, no drive. Goals are our way of expressing the financial reality we would like to live in.
You will learn more about making SMART goals in the Fresh Grass episode. In this context, “SMART” refers to: Specific, Measurable, Achievable, Relevant, and Time-Bound. For now, just know that, for your budget to balance properly, your goals must align with your reality.
YouTube Playlist Of Videos
The Organic Farmer’s Business Handbook
The philosophy of this book is best summed up by the title of Chapter 2, “Farm For Profit, Not For Production.” No matter what you choose to grow in the field, this book will help you in the office.
Fearless Farm Finances
Farm financial management – demystified. This book provides a good introduction for those who may be uncomfortable keeping records and analyzing such information.