Developing budgeting skills (continued from last month)
Developing budgeting skills
Consistently believable budgeting should not be luck.
The major problem with budgets that I have witnessed is that after a number of years of not achieving budget, banks tend to question your business skills—regardless of the fact that no-one can predict the future with accuracy.
Your budget is a key information document between you and your bank. You want to give yourself and your bank a viable budget that meets personal and business objectives—but you want to beat it during as many years as you can. That is, be short on promise, but high on delivery.
Pressure-test your next budget when you are putting it together. How hard can you wind back yields and prices, and how conservative can you be on expenses but still achieve the bottom line you need—to pay drawings, tax, current financial commitments, and new investment?
By preparing an initial budget, then making it more conservative, you are being a prudent financial manager operating in an environment that is not risk-free.
Of course, if your initial budgets are tight anyway, and just about give the bottom line you need, this means that you may have little wriggle-room to manage adverse events during the coming season.
Don’t despair; your task is still to try and understand why things are tight and formulate a plan to improve profitability and cash flow.
Conclusion
Take this current harvest and selling season as (another) learning opportunity.
Consider your budgeting track record and think about the ways in which you can use your budget and monitoring process to better-understand your business.
It is not possible to predict the future with full confidence in the outcome. However, developing your budgeting skills will help you and your bank to consider and back plans to improve business performance.
You will also become more confident about presenting your business plan, and bank managers love dealing with people who realistically know what they are talking about – and who deliver their plans in most years.
For information, see Tree Fruit April 2014
