Inescapable ExpensesThese are the expenses you have a moral obligation to pay: either the law says you have to pay them (eg rates and land taxes), or because you have previously entered into a contractual obligation to pay them.
Such a contract might include a repayment schedule with a bank, lease payments on land, vehicles or equipment, payments for the welfare of aging parents or payments to your siblings who are not on the farm. If you are rolling over an existing equipment lease then you are not adding (except incrementally) to the current level of ‘I’ Expenses
- however you must seriously challenge the ongoing need for this overhead, and ask yourself, “Is there another way?”
Classifying a new ‘moral obligation’ taken on this year
If you decide, as part of your planning this year, to enter into a new lease or contractual arrangement, it will NOT be an Inescapable expense this year.
The new commitment is arising from a decision during the current planning period. Of course, you instinctively know that you would only enter into a new obligation for land, equipment etc, IF this expense is directly strengthening the weak link in the business. If it is not directly nailing the Weak Link you will not be growing your business. In fact you will go backwards!!So, for this year (the year of the investment) the new commitment is a ‘W’ expense. Next year, and for all following years until the expense is terminated, the payments will be an ‘I’ expense, as they relate to commitments made in a prior period.
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