Financial Planning

You now have enough background to develop your own financial plan and system for your farm. This will take time and is best done in a series of sessions back home. Put as much detail as possible into your plan and try and do accurate estimates – when required.

Follow the steps indicated below and use the My Farm Record-Keeping Forms to record data.

Step 1: Estimate your income for the next year on current enterprises

Plan for income by using My Farm F2: Plan for Income

List all estimated and planned income per enterprise. Now decide in which months (often seasonal!) to allocate income.

List the planned income for enterprises in F1 and F5.

Note: Plan for your profit by cutting your estimated income in half. One half is allotted for-profit and the other for expenses.

If you have a fixed cost in excess of the one-half mark/ or near to it, increase the 50% on costs to 75%- 80%.

It is important to plan your profit. One of your objectives would be to see your profit return a reasonable amount on your investment.

Step 2: Develop an account for family salaries

If early on you cannot pay yourself as much as your budget, you still should strive for a system that pays you for your labour, plus a return on your investment.

Plan conservative, yet realistic. If you do not plan for this you will be tempted to draw money from the business income anyway. Plan this and stick to the amount budgeted!!!

Now list this as a cost item in F1 and F5.

Step 3: Develop an account for depreciation.

This is money you are setting aside to be able to replace or repair equipment and buildings when the time comes. Although in the early years, you may not be able to do so, it’s a good idea to open an interest-bearing account into which to pay depreciation expense at the end of each year when you calculate depreciation. This will enable you to do replacements and repairs when required.

Start in the early years by budgeting for small amounts – to get the habit going!

Now list this as a cost item on F1 and F5.

(Actual depreciation will be calculated and indicated in the My Farm F6: Income Statement at the end of the Financial Year or Mid-Year.)

Step 4: Monthly recording

All the planning is not worth much if you do not keep up your records of monthly income and expenses!

Use My Farm F3: Monthly income and expense sheet to record ALL transactions with monetary value. It is critical for book-keeping purposes to record each and every little transaction – even the R5 nut that you have bought from the Hardware shop.

NB TIPS: Keep an envelope with you in your vehicle. Every time that you buy anything – put the slip into the envelope.

Do weekly recording of income and expenses based on your receipts and invoices/ cash slips. Monthly may be too much at a time.

Once you have recorded all transactions staple your supporting documents (cash slips/ receipts and invoices) together and file them at the back of your monthly income and expense sheet in a lever arch file.

Step 5: Record income and expense per enterprise

Transfer the transaction amounts recorded in your monthly income and expense sheet into the My Farm F4: Monthly Income and Expense per Enterprise sheet.

This will enable you to build up an accurate database of production cost and profitability per enterprise – enabling you to make sound business decisions!

Step 6: Monitor on a quarterly basis to determine your financial progress against the planned budget.

By making use of My Farm F5: Quarterly monitoring of income and expense you will be able to evaluate your progress against the plan.

On a quarterly basis:

• calculate the total income and expense per line item and
• transfer the total expense and income for the past three months into the Monitoring sheet (F5) relevant Quarter column.

Now calculate the Actual Year to date column by adding the totals per line item for the relevant completed quarters.

This will enable you to calculate the Percentage to Date of the itemized income and expenditure.

This information should enable you to plan your actions for the next quarter.

Yearend totals will provide valuable information, enabling you to:

• budget more accurately
• take relevant actions to re-align your farming operations

Step 7: Compile Income Statement and Balance Sheet

Based on your accurate and updated financial information it will, at the end of the financial year, be easy as pie to compile your Income Statement (F6) and Balance Sheet (F7).

You may also hand your financial records to an accountant to compile your Financial Statements.