We’re starting to get deposits for our upcoming hog sale
which occurs the first week of April. We’re expecting a total of $4200 from this particular sale. We also are just starting to sell hay, and we have a target # of bales we want to sell which would bring in a total of $2800. And now I have the pleasant dilemma of how to allocate all of that.
DH and I had considered using that income to pay down debt. But we already have our debt snowball going on a slow but acceptable schedule. And we agreed that we want 100% of the farm earnings to go back into the farm, so that we can show that the farm is standing on its own financially. While that might be a subtle point in the grand scheme of things, it’s important for us philosophically to know that the farm is starting to pay its own way and make a profit. We will be paid our hourly wages from those earnings, so we can budget those wages in our household’s zero-based monthly budget like any other form of personal income. But the rest of the earnings, we’ve decided will stay on the farm side of the ledger.
Towards that end, we still have some decisions to make. We already have a break-even analysis worked out, such that we know what our costs were for the hogs and the hay, and we know that we’re making a profit at our asking price for each. Given that, we can:
1) put all earnings back towards the general Farm savings account, to be drawn from for any future farm cost. This would give us a lot of flexibility, but it would be harder to track what we spent vs earned in any given farm category.
2) set up specific sinking funds for Swine and Hay, and use the earnings from each to fund all future costs for each. That would keep “swine money” in the Swine category, and “hay money” in the Hay category; in other words we would be barred from spending that income outside of their respective categories. There is a certain comfort in that idea, because it’s “cleaner” in terms of accounting. But it also restricts our options for other farm expenses.
3) put just enough of the earnings into each account to cover what we spent for that product batch, then put our profits in the general farm account to be used in whatever way is needed. Frankly, I like this option the best, because it’s the closest to what we want – each product type generates enough profit to not only cover the costs, but also give us extra which we can then put back into the farm however we want or need.
I’d be curious for those folks on the list who have their own businesses, whether one of the three options above is clearly a better answer than the others, and why. In a way this might be nothing more than an academic argument. But we’re trying to apply zero-based budgeting strategies to the farm just like we’re doing for the household. So how we allocate those earnings now, will really shape the ongoing ease of working with the farm budget over time. Any suggestions?