With farm business profits coming under increasing pressure from the demand for cheap food, rising input prices and BREXIT, it is essential when budgeting to question every cost to identify if costs can be eliminated altogether or at least reduced compared to previous years. This applies across all farming sectors.

Bench marking can help identify cost areas that are above the average or top 10%, but where do you go if you are already better than average. Every business can make improvements, they may not always lead to large savings but every small reduction in costs helps. Very often budgets are produced which just take last years’ costs and add on a bit for inflation. You cannot afford to take this approach anymore.

Zero cost budgeting is based on looking at each individual cost of the business and starting from zero, identifying what you must spend and then looking at the other elements of that cost centre and deciding if they can be eliminated or at least reduced. Question each element of the costs centre; do I need it, if yes can I get better value for money or can I reduce the amount I use?

The easiest way to do this is to start with your nominal ledger from your management accounts for last year that shows you what you spent on each cost centre and work through it removing those elements you do need to spend on and questioning how much you use of those costs you have to incur. This is where having up to date management accounts are extremely useful to help with this exercise rather than having to wait for your tax accounts to come back.

A key part to this is not just looking at the price of an input, but also how much you use of that input. For example, we very often get told that the cost of spreading slurry cannot be reduced as the farmer has already negotiated a good deal with his contractor. That may be true, but you can control how much slurry there is to be spread from the store. This can be reduced by turning cows our earlier and keeping cows out to grass longer in the autumn and making sure clean water is not entering the store. Doing this will not alter the price charged, but it will reduce the number of hours required to spread the slurry that is stored.

If you would like help using this approach to budgeting or wish to discuss the use of management accounts within your business, please contact Phil at pcooper@fcgagric.com or your local FCG Office.