David Egerton-Warburton: budgeting is
ongoing, not a once-off.
PHOTO: Clarisa Collis
David Egerton-Warburton, managing director of farm management software company Agrimaster, likens planning in the face of volatile markets and a changing climate to a military campaign.
I wish I had a dollar for every grower client who told me that they did not do a budget “because it all changes anyway”. The flaw in this is thinking that a budget or plan is a once-off document, something you do at the beginning of the year for the bank.
Rather, the key to farm business success in a climate of low-margin/high-capital-risk farming is to make lots of financial plans to provide options and to review the position of your business weekly or monthly. Look for the financial truth, and adjust to any new reality.
Helmuth von Moltke (1800–91) would have made a great farm manager.
A German field marshall and the chief of staff for the Prussian Army for more than 30 years, Moltke is regarded as one of the great strategists of the 19th century.
Moltke believed that any strategy should be seen as a system of options, since only the start of a military campaign could be planned. His two main propositions were: “No plan of operations extends with certainty beyond the first encounter with the enemy’s main strength” (or no plan survives contact with the enemy) and “Strategy is a system of expedients”.
So it is a mistake to think that because Moltke’s plans had to change, it was because he didn't plan. On the contrary. Moltke actually made very detailed plans that took into account numerous variables.
That is why he would have made a good farm manager. Farm business management is just like preparing for battle. You need to know your current position; you need to have a clear objective; you need to know what resources you have, such as land, stock, machinery, labour and working capital; and you need to know your controllable risks and your uncontrollable risks.
Based on this information, detailed production plans and equally detailed financial plans or budgets can be made to ‘ground truth’ production plans. Wins and losses are not measured in productivity, but in dollars.
The 7th Innovation Generation Conference recently
concentrated the focus of 140 people under 40 years
of age on the future of Australian agriculture. Themed
‘The Asian century: our markets, our future’, the
GRDC-sponsored event in Geelong, Victoria, explored
the role of the national grains industry in supplying
high quality food to the Asia–Pacific region. Two
grains innovators who spoke were the University
of Tasmania’s Kevin Redd, who provided insights
into new brewing technology, and Agrimaster’s
David Egerton-Warburton, who outlined strategies
to help lift farm business management.
Like Moltke’s battle strategies, your plans will not survive first contact with your enemy – the weather, markets, equipment breakdowns and health issues. So when planning for the battle at the beginning of the season, I encourage people to think through different scenarios and make several different plans based on possible alternatives.
I actually suggest a minimum of five budgets:
- Baseline budget – this is the most probable, and the one you take to the bank.
- Bad-year budget – tailored to late or low growing-season rainfall and low commodity prices.
- Good-year budget – characterised by early rain and high commodity prices (note that most big business mistakes are made in good years).
- Half budget/half actual – a combination of your baseline budget with your monthly actuals imported into each month as they are reconciled, so you can see how your cash flow is going.
- Sandbox budget – this is where you play with scenarios, so you do not ruin your other plans.
The importance of this extra planning before the season, or battle, starts is that your mind is clear. Do not expect to be able to think as clearly in the heat of battle, such as during seeding.
You need to be able to review and adjust your plan as business conditions change, because no plan survives first contact with the enemy.
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