The Budget

Like any other business, farming has to generate more cash than it spends to cover its operating costs, the depreciation of its capital equipment and farm properties plus a return on the investment.  If this is not achieved it is inevitable that the farm will not be sustainable over the long term.  It is also like many other businesses, complex.  So, it is important to have proper financial planning and control as well as operational administrative control.

We recognize that Henden is fortunate in having had good access to capital.  It carries no bank debt and always has sufficient working capital to handle its day-to-day finances.  When the farm requires additional finances we have provided this.  We have not taken any money out of the farm since we bought the estate in 1997.  With the redevelopment complete and the herd at full strength we now need to have the combination of efficient management, which pays close attention to detail day in and day out, and a realistic milk price.  Together this will allow the farm to become self-financing and to start returning capital.

Introduction

Every month we produce, as all businesses should do, a detailed set of management accounts, which track our operating and financial performance.  Each year, too, we prepare a budget covering operations, such as expected cows in milk, yields and feed demand, and the financials derived therefrom:  revenue and costs.  This work is finalised in March ahead of the farm year on 1st April.  The budget is a spreadsheet, which extends to 22 individual work sheets, but one has to recognize that it is based upon forecasts some of which are extremely difficult to predict, including for example the yield that our cows will achieve, the cost of some our feed and the all important price we will get for our milk.  To quote Yogi Berra, “prediction is very hard, especially when it's about the future”.