Although the business of farming in Ireland today has modernised significantly over the years, the farming sector is unique in how it is linked to the family and household budget.
In some cases, there may be no separation, which can make budgeting and planning difficult. Especially in times of uncertainty like we have now. With the National Ploughing Championships taking place around this time, we thought it would be a good opportunity to look at how to budget on a family farm.
The principles of budgeting for a family farm are like the principles of budgeting in general.
Irish farming heavily depends on demand at home (domestically) and abroad (internationally). Dairy and beef are two of the biggest agri-food sectors, and external factors such as the pandemic will greatly impact demand. For example, the pandemic resulted in the temporary closing of restaurants at home and across Europe, reducing the price farmers can get for their products.
You might be asking how this relates to the cost of running the family farm. It all starts by setting out a budget for the family farm and household budget. Doing this will make it easier to account for fluctuations in commodity prices.
So, let’s look at how to get started and get ‘moooooo’ving!
Setting out a Budget
There are advantages to preparing a budget for the year ahead. Now can be a particularly good time, if you’re a crop farmer as the harvest will have begun and the sowing for next year. For example, budgeting can:
- help with planning and prioritising capital expenditure
- give you a better idea of future expenses or loan repayments. Knowing this will help reduce surprises and will also provide a clearer picture of anticipated spend
- empower you to have a conversation with your bank about overdrafts or loans
- help planning in times of uncertainty and plan a way forward
Setting out an annual budget is not a ‘one and done’ annual task, and it’s never too late to start a new budget Once complete, it is important to review on a quarterly or, even better, monthly basis. Doing this will mean that it is up-to-date and accurate, reducing the possibility of surprises. Reviewing your budget regularly will help reduce costs, and one way to increase your margins is to reduce costs.
It is recommended to check your actual costs against what you had budgeted. If, for example, the cost of electricity or fuel is higher than what you had budgeted, then ask yourself if there is a reason for this.
With rising costs, it can be difficult to prepare for how much prices may increase even 6 months down the line, but if you start budgeting now, you are aware of what you’re spending.
- Can you reduce consumption?
- Can you shop around for a better deal to lessen the impact of future increases?
- Can you put some extra aside now to help during the winter months?
Other costs could include (but are not limited to):
- the cost of feed
- vet bills
- labour and contracting costs
- land leasing costs
- loan/overdraft repayments
- accounting/business advice fees
One way of identifying the costs that are unique to your farming enterprise is to review your bank statements from the last 12-24 months. This can help to identify trends over time. It also helps to identify annual costs that can be planned vs one-off costs.
Separate Bank Accounts
In a farming household, it is sometimes hard to see where the household starts and the farm ends. One of the biggest mistakes many self-employed people including farmers make, is not having a separate bank account for the business and the household. You’ve created a budget for the farm, it’s just as important to set time aside to sit down and work out what it costs to run the household separate to that of the farm. If you need help with budgeting, try out our budgeting tools. If money is tight, then ensure to prioritise food, light and heat for the family.
Plan and Set Priorities
Setting a goal for the family finances is a great way to reduce unnecessary spending. It helps to define what is a need and what is a want. A short-term goal may include the cost of children returning to school. A long-term goal could include planning for retirement. Either option involves being aware of the money that comes into the household and money going out.
Farm Diversification is a term that has been around farming for some time. Whether it is growing organic crops, adding value to the raw product produced on the farm like making cheese, or even running a Farmhouse B&B, farmers can look at what resources they have and capitalise on them. Contact LEADER, Enterprise Ireland, LEO’s (Local Enterprise Office) and Teagasc for advice and support.
Off-farm employment can include up-skilling/retraining to fill skills gaps, avail of courses, dairy operatives, rural carers and rural tourism.
Knowing social welfare entitlements, including Farm Assist and the Rural Social Scheme may also help increase household income. For more information on entitlements, please contact the Citizens Information Phone Service (CIPS) on 0818 07 4000.
What Can You Do If You Are in Financial Trouble?
- Talk to your family and creditors to explain your situation. Communication often suffers when a person is under stress.
- Get advice from your Accountant and/or Farm Advisor. Your local MABS office can also assist with household budgeting and advice.
- Ensure your accounts are up to date and the latest Revenue Return is submitted.
- Keep an eye on feed costs, machinery and contracting costs. These can be areas that can be of high cost and constant outflow.
- Successors to the farm should be considered in all plans going forward.
Budgeting and looking closely at your spending habits can be tricky. But once you take a step back and review your finances, it may be easier than you think!
If you have any other questions or would like to speak to a member of MABS, call our National Helpline on 0818 07 2000 Monday to Friday, from 9am to 8pm, WhatsApp 086 035 3141 or request a callback if you want to talk confidentially about budgeting, problem debt or general financial matters.