Agriculture is the most essential sector that contributes to the National GDP and employment. Agribusiness is fundamental for economic development and the eradication of poverty. However, agribusinesses are faced with many challenges; from access to financing to the constant rise in inflation and the capacity for financial management, to mention a few.
Above that, agripreneurs are faced with organising and handling the farm resources accurately to ensure the maximisation of economic returns on their investments. These resources range from land – either leased or owned – to capital assets such as breeding livestock, machinery, required developments and labour. For sustainable and profitable farming, the utilisation and allocation of these resources must be carried out accurately through proper planning and budgeting.
Budgeting is a financial management tool that can provide information for alternative options that can be used. Budgeting is a vital part of farm financial management that may aid farmers in making informed, calculated decisions. Upon the completion of annual budgets for farming, the following components must be considered: the methods of production, cost of each enterprise (number of livestock and crop yield per acre), sources of farm income, supplies inventory, the conditions and value of the facility and equipment, taxes and insurance values.
Moreover, the consideration must be accorded to the farm business expenses, loans, sales, new and potential investments, and standing payments. These will aid with proper budgeting preparation, and in making future decisions about the farm’s financial condition and performance.
There are different types of budgets that may be utilised by farmers, such as the cash flow budget, whole farm budget, and the enterprise, with each serving a different purpose. Mainly, these budgets are used to forecast the cash inflows and outflows, and summarise the available resources and the planned farm production.
Additionally, budgets are used for planning the expenses, revenues and profit for a certain enterprise, and provide alternative choices. Budgeting similarly helps you as a farmer to track the cash outflow required in comparison to the accessible cash inflows over a given period.
Most importantly, budgeting for farm financial management is important in demonstrating the prospective profitability of each enterprise of the agribusiness, and in monitoring and controlling the agribusiness performance. Budgeting can equally be used in credit applications by farmers, by showing the farmer’s repayment capacity for the loan.
Research illustrates that there is a positive relationship between the adoption of farm financial management practices, such as planning, control, budgeting and the profitability of agribusiness.
* Mekupi Kambatuku holds an MBA and a Post-graduate Diploma in Business Administration. She has over 10 years experience in the finance sector, and is currently working on completing CIMA (Chartered Institute of Management Accountants). Kambatuku writes in her personal capacity as a farmer.