Farming is unlike most other small—to medium-sized businesses, as you must commit most of your annual cost up front and carefully manage a large amount of future financial uncertainty and risk.
Many farm businesses across Australia use Excel to model and present their annual farm cash flow budgets and forecasts. Excel is cheap as it is included in most standard office software subscriptions, such as Microsoft Office 365 or Google Docs. Many people have enough basic Excel skills to add up a row or column, and you can download basic standard budget templates.
Yet, although it can 'do the job if used well,' I do not recommend using Excel for your farm budgeting and annual forecasting. Although Excel is a very flexible and powerful modelling tool, it has some huge and deal-breaking drawbacks.
It takes a lot of work to build a Cash flow Budgeting model in Excel that works well
I took an advanced Excel financial modelling course in Sydney several years ago to expand my knowledge of financial modelling. I learned some fantastic modelling skills with people who were a lot more experienced than me. Yet we spent half of the course writing complex checking formulas to validate that our calculations were correct and to try and trap any errors. I needed a lot more time to get my Excel model bug-free. I learned that great models can be built in Excel, but you need talent and the time to do it well.
A specialist farm budgeting application like Agrimaster comes as a fully built and tested cash flow forecasting and budgeting model for your farm business. No expertise or time is required. Once you have learnt how to use Agrimaster budgeting, all you need to know each year is your production plan and how you plan to execute it. Agrimaster will do all the hard work and calculations for you, ensuring everything adds up accurately.
A specialist farm budgeting application like Agrimaster comes as a fully built and tested cash flow forecasting and budgeting model for your farm business.
Creating and changing your forecast is hard and takes a long time
Behind every number in a budget forecast, there is an assumption. Wheat revenue in December of $190,000 = (1000 ha x 3 tonnes = 3000 tonne. Sell 500 tonne in December at $380 per tonne). You need to do a calculation like this for most of your figures. Then, if you want to change one figure, e.g., hectares, you will need to recalculate every cell containing that crop again. Doing this is more straightforward if you have the expertise to build integrated and connected sheets with individual Enterprise models – yet they require much maintenance.
In comparison, specialist farm budgeting applications like Agrimaster have specialised integrated production-based models for every type of farming enterprise. All you need to know is what you will grow this season and how you will grow it. The specialist models will do all the calculations for you. If you want to change the hectares of wheat you plan to grow, you can change just one number, and the model will recalculate all your forecast income and expenditure for up to 5 years!
Agrimaster has specialised integrated production-based models for every type of farming enterprise.
You can't trust the results because you can't trust the formulas to type in; therefore, you won't trust the whole budget
I spoke to an accounting firm about their Excel budgeting tool for clients. They told me they are worried about it being correct each time, so they spend just as long checking the data accuracy each time as they do to create the cash flow in the first place. Formulas can be accidentally deleted, written over, moved, and disconnected.
In comparison to a specialist integrated application like Agrimaster, you never need to check formulas as they can be deleted and have been tested by professional software test analysts.
It is hard to use or share with more than one person
Excel is like many dog breeds; it is loyal to only one owner. It is hard enough for the builder of an Excel model to remember how it works. It is essential to recognise and understand what cells direct entry, what cell formulas are in, and how all the complex formulas work. If you share your Excel budgeting model with another person, the risks of breaking and being wrong increase dramatically. If you use an adviser or accountant to build your cash flow models, they will only give you PDFs or printouts of the budget because sharing it with you involves too much risk. Therefore, if you would like to make a change or run a report, you will need to pay them to do it for you.
Compared to specialist farm budgeting applications like Agrimaster, you are in 100% control of your budget. You can share your file with all your accountants and farm business advisors, and all your work can be shared from one source of truth. It works for all stakeholders in your business. You can make copies, build alternative what-if scenarios, and run reports whenever needed.
Excel is cheap, but the risk of getting it wrong is very high, and your time in the office is valuable.
It is not integrated with your bookkeeping system, so it is difficult to create important reports quickly, such as a budget-to-actual comparison report
Cash flow budgeting and forecasting are tactical tools that need to be updated regularly based on real-world changes to weather and markets. They also need to be compared to actual income and expenditure for the year to date to see if you are on track and to alert you to any risks or opportunities—for example, the risk of going over your overdraft in three months. If you are using a standard small business bookkeeping application plus a spreadsheet for budgeting, this will take a long time each time you want to do it. You will have to export, import, create lookup formulas, cut and paste data, etc. So, like most people, you will put off doing it each month and be in the dark about your status.
Unlike a specialist farm budgeting application like Agrimaster, you would just click on the Budget to Actual comparison report button. Done!
You must make a copy of the entire Excel model each time you want to create a new budget for the next season or a different scenario
You will need to make a copy of all worksheets and all the connected models, ensuring all the connections don't break. You will then need to delete or alter all the data from the previous budget and check that all the formulas still work, as you may have accidentally deleted them! If you want to build alternative models for an Enterprise, e.g. An alternative crop production strategy you think may be more profitable. You will need to recreate this model in every copy of your budget.
If you are not using a spreadsheet with integrated connected modelling worksheets, you will need to check and recalculate every cell in your budget. A typical farm budget can have 2400 plus data entry cells. That is a lot of hand calculations, and it will take many days in the office to do each time.
Compared to a specialist farm budgeting application like Agrimaster, you can create integrated multi-year budgets, attach alternative Enterprise models to any budget you like, and move between years using a dropdown. It has speed direct entry that allows you to enter 12 months at a time; it also calculates GST, PAYG, Fuel Tax, and Interest in and out. Plus, you never need to check formulas as they can be deleted and have been tested by software test analysts. It will be much faster, more effortless, and more accurate.
It is hard to forecast tax cash flow using Excel
Tax, especially GST & PAYG, significantly affects farm cash flow and peak debt calculations. Therefore, you need to calculate when and how much tax is forecasted to be refunded and paid monthly. GST and PAYG do not always get paid or refunded on the month they are calculated, so you need to budget exclusively for GST and calculate the GST cash flow separately based on the budgeted income and expenditure. This would be very hard to do in Excel!
In comparison, a specialist integrated application like Agrimaster automatically calculates GST, PAYG, Fuel Tax, and Interest in and out based on every income and expenditure number typed into the budget and adds the cash flow to the correct cash flow month.
Excel is cheap, but the risk of getting it wrong is very high, and your time in the office is valuable. So, take back control of your farm's financial future and your time. Break up with Excel this year and invest in a specialist farm budgeting application like Agrimaster.
