What farmers can teach small business about budgeting

What farmers can teach small business about budgeting

Although we now run a successful business in Perth, Western Australia, my wife, Natalie, and I met, married and started our careers in rural WA. Often when people learn we’ve come from rural farms to running a financial software business in a capital city, they’ll remark at how ‘far we’ve come’, as if the two endeavours are completely separate from one another.

In reality, managing a farm is the perfect baptism of fire when it comes to understanding and forecasting cash flow. Without a strong hold on cash flow entire farms will fail, as they largely rely on one harvest period per year to bring incoming cash to the business. As a result, almost all farmers know the following lessons are imperative to healthy cash flow systems:

1) Cash flow is everything

Don’t be fooled by a lack of suit and tie; a good farmer knows his finances back to front. Being able to anticipate how much money is coming in and when it will arrive is imperative to a healthy farm business, as income commonly only comes in during one season a year. Subsequently, expenditure needs to be planned, budgeted for and monitored so as not to throw out the cash flow of the entire year.

2) Be aware of risk

While many small-business owners take a head-in-the-sand approach when it comes to business risks, farmers need to understand the risks associated with their business as a matter of necessity. In farming risks can be as unpredictable and devastating as drought, bushfires and natural disasters, so forecasts, plans and insurance are essential safeguards. These measures can only be implemented with a clear understanding of risk.

3) Plan for the long-term future

It would be uncommon to hear a farmer talk about their business in terms of a quarterly or annual plan. Instead, famers look several years into the future when planning a robust, successful business. Largely, this is because farmers understand that good things take time. If one year sees a farm fail to reach its goals, typically farmers have scenario-planned to accommodate losses, with the view to apply the knowledge gained from losses to improve the year ahead.

4) Don’t be afraid to seek help

More than most, farmers know how to play to their strengths and to ask for help when jobs require skills outside their expertise. For an occupation that relies largely on a physical skill set, it doesn’t suit many farmers to manage their finances alone. For this reason farmers are happy to seek advice from bookkeepers, accountants and digital tools to achieve healthy cash flow forecasts.

If you’d like to budget like a farmer, why not sign up to the Reep free trial? With live access to your financial information through integration with Xero, MYOB and Agrimaster, Reep simplifies the budgeting and forecasting process so you won’t get bogged down in the detail.