Farmer's Most Common Financial Planning Mistakes

- David Maree

The nature of farming in our fast-changing, modern world is very different from that of the past. Today’s farmers dare not leave anything to chance, and need to plan every aspect of their operations in detail; this includes production, fodder flow, and labour.

Financial planning, of course, underpins everything else; it is arguably the most important consideration on which a farm’s future depends. Some mistakes in finances can be rectified, but with others it is not that simple, and errors can prove costly. The good news, though, is that most of these mistakes can be avoided.

PROPER BUDGETING

 In my opinion, the most important mistake farmers make when it comes to financial planning is failing to draw up a budget, or not budgeting properly. This problem can be rectified quite easily, however. The old saying that ‘you can’t manage what you can’t measure’ is very true. In addition, you cannot manage something if you are unable to measure it against certain parameters.

Budgets, whether for production, capital expenditure or cash flow, are crucial for the effective management of a farming operation. Careful budgeting not only helps with aspects such as cash flow, it is an important part of any credit application. Therefore, when budgeting, take the SMART approach: your goals must be Specific, Measurable, Achievable, Realistic, and have a Time frame. Adhere to these principles when drawing up your budgets and you will avoid many errors.