budgeting
DESCRIPTION
Budgeting. Gain control of your money. Objectives. Be familiar with the types and purposes of farm budgets. Construct and analyze enterprise budgets, whole farm budgets, and cash flow budgets for management purposes. Be able to explain and justify estimates for production and expenses. - PowerPoint PPT PresentationTRANSCRIPT
Budgeting
Gain control of your money.
Be familiar with the types and purposes of farm budgets. Construct and analyze enterprise budgets, whole farm budgets,
and cash flow budgets for management purposes. Be able to explain and justify estimates for production and
expenses. Be able to identify potential cash flow problems. Maintain and utilize a household budget.
Objectives
Estimate the revenue, expenses, and profit for a single
enterprise for a year or less. Enterprise: individual crop or livestock
i.e. winter wheat, grain corn, cow/calf, backgrounding Allows you to “try it out” before committing resources to the
enterprise. Part of strategic management Tests feasibility Allows you to pick most profitable enterprises Gives you a base on which to compare alternative enterprises.
Enterprise Budget
Revenue – includes cash and noncash revenue (include
price/yield). Operating (Variable) Expenses – includes costs that are only
incurred if crop is produced. Fuel and Lubricants, Machinery Repairs, Labor:
Total Fuel Expense ÷ Crop Acres Fuel Expense/Acre x Number of Acres x Number of Operations Fuel Expense/Hour x Hours for Machine Operations
Interest – interest on borrowed capital or opportunity cost
Budgeting Fundamentals
Budgeting Fundamentals
Ownership (Fixed) Expenses – includes costs that will be incurred even if no crop is produced. Machinery Depreciation - average annual depreciation per acre Machinery Interest = [() x Interest Rate] ÷ Acres Machinery Taxes & Insurance Land Charge:
Cost to rent similar land Net cost of crop share If owned, land value/acre x interest rate
Budget units and time period
Make adjustments for: Double cropping Storage costs Establishment costs Breeding herd replacements
Budgeting Considerations
Quantity Price or Value or Total ValuePer Acre Unit Cost/Unit Cost/Acre or Cost
Gross RevenueWheat Grain 100.00 bu. 7.49$ 749.00$ 374,500.00$
Government PaymentsTotal Gross Revenue For Wheat Grain 749.00$ 374,500.00$
Operating ExpenseSeed 90.00 lb. 0.29$ 26.10$ 13,050.00$ Fertilizer 55.00 lb. 0.33$ 18.15$ 9,075.00$ Pesticides 30.00 lb. 0.29$ 8.70$ 4,350.00$ Fuel, oil, lubrication 1.00 acre 6.00$ 6.00$ 3,000.00$ Machinery Repairs 1.00 acre 13.00$ 13.00$ 6,500.00$ Labor 2.00 hr. 20.00$ 40.00$ 20,000.00$ Interest 50.40 $ 0.09$ 4.54$ 2,268.00$
Total Operating Expenses per Acre 116.49$ 58,243.00$
Net Returns Above Operating Expenses 632.51$ 316,257.00$
Cash Ownership ExpensesMachinery Depreciation 1.00 acre 14.50$ 14.50$ 7,250.00$ Machinery Interest 1.00 acre 10.00$ 10.00$ 5,000.00$ Machinery Taxes & Insurance 1.00 acre 2.00$ 2.00$ 1,000.00$ Land 1.00 acre 400.00$ 400.00$ 200,000.00$ Miscellaneous Overhead 1.00 acre 5.00$ 5.00$ 2,500.00$
Total Cash Ownership Expenses per Acre 431.50$ 215,750.00$
Total Expenses per Acre 547.99$ 273,993.00$
Profit (Return to Management) 201.01$ 100,507.00$
Management Fee 1.00 acre 25.00$ 25.00$ 12,500.00$
Profit (Return to Risk) 176.01$ 88,007.00$
Budget for Soft White Winter Wheat 2013 Crop Year
Cost of Production = Break-even Yield = Break-even Price = Sensitivity Analysis:
Analyzing Enterprise Budgets
Price per bushel ($)
Break-even Yield (bu)
$6.50 84.3$7.00 78.3$7.50 73.1
Yield (bu.) Break-even Price ($)
90 $6.09100 $5.48110 $7.98
Total Cost (Total expenses per acre)Yield (per acre)
Cost of Production (per bushel)
To Solve for Cost of Production:
Quantity Price or Value or Total ValuePer Acre Unit Cost/Unit Cost/Acre or Cost
Gross RevenueWheat Grain 100.00 bu. 7.49$ 749.00$ 374,500.00$
Government PaymentsTotal Gross Revenue For Wheat Grain 749.00$ 374,500.00$
Operating ExpenseSeed 90.00 lb. 0.29$ 26.10$ 13,050.00$ Fertilizer 55.00 lb. 0.33$ 18.15$ 9,075.00$ Pesticides 30.00 lb. 0.29$ 8.70$ 4,350.00$ Fuel, oil, lubrication 1.00 acre 6.00$ 6.00$ 3,000.00$ Machinery Repairs 1.00 acre 13.00$ 13.00$ 6,500.00$ Labor 2.00 hr. 20.00$ 40.00$ 20,000.00$ Interest 50.40 $ 0.09$ 4.54$ 2,268.00$
Total Operating Expenses per Acre 116.49$ 58,243.00$
Net Returns Above Operating Expenses 632.51$ 316,257.00$
Cash Ownership ExpensesMachinery Depreciation 1.00 acre 14.50$ 14.50$ 7,250.00$ Machinery Interest 1.00 acre 10.00$ 10.00$ 5,000.00$ Machinery Taxes & Insurance 1.00 acre 2.00$ 2.00$ 1,000.00$ Land 1.00 acre 400.00$ 400.00$ 200,000.00$ Miscellaneous Overhead 1.00 acre 5.00$ 5.00$ 2,500.00$
Total Cash Ownership Expenses per Acre 431.50$ 215,750.00$
Total Expenses per Acre 547.99$ 273,993.00$
Profit (Return to Management) 201.01$ 100,507.00$
Management Fee 1.00 acre 25.00$ 25.00$ 12,500.00$
Profit (Return to Risk) 176.01$ 88,007.00$
Budget for Soft White Winter Wheat 2013 Crop Year
Total Cost (Total expenses per acre)
$547.99
Yield (per acre) 100Cost of Production (per bushel)
$5.48/bu.
To Solve for Break-even Yield:
Quantity Price or Value or Total ValuePer Acre Unit Cost/Unit Cost/Acre or Cost
Gross RevenueWheat Grain 100.00 bu. 7.49$ 749.00$ 374,500.00$
Government PaymentsTotal Gross Revenue For Wheat Grain 749.00$ 374,500.00$
Operating ExpenseSeed 90.00 lb. 0.29$ 26.10$ 13,050.00$ Fertilizer 55.00 lb. 0.33$ 18.15$ 9,075.00$ Pesticides 30.00 lb. 0.29$ 8.70$ 4,350.00$ Fuel, oil, lubrication 1.00 acre 6.00$ 6.00$ 3,000.00$ Machinery Repairs 1.00 acre 13.00$ 13.00$ 6,500.00$ Labor 2.00 hr. 20.00$ 40.00$ 20,000.00$ Interest 50.40 $ 0.09$ 4.54$ 2,268.00$
Total Operating Expenses per Acre 116.49$ 58,243.00$
Net Returns Above Operating Expenses 632.51$ 316,257.00$
Cash Ownership ExpensesMachinery Depreciation 1.00 acre 14.50$ 14.50$ 7,250.00$ Machinery Interest 1.00 acre 10.00$ 10.00$ 5,000.00$ Machinery Taxes & Insurance 1.00 acre 2.00$ 2.00$ 1,000.00$ Land 1.00 acre 400.00$ 400.00$ 200,000.00$ Miscellaneous Overhead 1.00 acre 5.00$ 5.00$ 2,500.00$
Total Cash Ownership Expenses per Acre 431.50$ 215,750.00$
Total Expenses per Acre 547.99$ 273,993.00$
Profit (Return to Management) 201.01$ 100,507.00$
Management Fee 1.00 acre 25.00$ 25.00$ 12,500.00$
Profit (Return to Risk) 176.01$ 88,007.00$
Budget for Soft White Winter Wheat 2013 Crop Year
Total Cost (Total expenses per acre)Output Price
Break-even Yield (bu./acre)
Total Cost (Total expenses per acre)
$547.99
Output Price $7.49Break-even Yield (bu./acre)
73.1
To Solve for Break-even Price:
Quantity Price or Value or Total ValuePer Acre Unit Cost/Unit Cost/Acre or Cost
Gross RevenueWheat Grain 100.00 bu. 7.49$ 749.00$ 374,500.00$
Government PaymentsTotal Gross Revenue For Wheat Grain 749.00$ 374,500.00$
Operating ExpenseSeed 90.00 lb. 0.29$ 26.10$ 13,050.00$ Fertilizer 55.00 lb. 0.33$ 18.15$ 9,075.00$ Pesticides 30.00 lb. 0.29$ 8.70$ 4,350.00$ Fuel, oil, lubrication 1.00 acre 6.00$ 6.00$ 3,000.00$ Machinery Repairs 1.00 acre 13.00$ 13.00$ 6,500.00$ Labor 2.00 hr. 20.00$ 40.00$ 20,000.00$ Interest 50.40 $ 0.09$ 4.54$ 2,268.00$
Total Operating Expenses per Acre 116.49$ 58,243.00$
Net Returns Above Operating Expenses 632.51$ 316,257.00$
Cash Ownership ExpensesMachinery Depreciation 1.00 acre 14.50$ 14.50$ 7,250.00$ Machinery Interest 1.00 acre 10.00$ 10.00$ 5,000.00$ Machinery Taxes & Insurance 1.00 acre 2.00$ 2.00$ 1,000.00$ Land 1.00 acre 400.00$ 400.00$ 200,000.00$ Miscellaneous Overhead 1.00 acre 5.00$ 5.00$ 2,500.00$
Total Cash Ownership Expenses per Acre 431.50$ 215,750.00$
Total Expenses per Acre 547.99$ 273,993.00$
Profit (Return to Management) 201.01$ 100,507.00$
Management Fee 1.00 acre 25.00$ 25.00$ 12,500.00$
Profit (Return to Risk) 176.01$ 88,007.00$
Budget for Soft White Winter Wheat 2013 Crop Year
Total Cost (Total expenses per acre)Yield (per acre)
Break-even Price ($/acre)
Total Cost (Total expenses per acre)
$547.99
Yield (per acre) 100 bu.Break-even Price ($/acre)
$5.48
Price Sensitivity Analysis
Cost of Production ÷
Yield = Break-even Price
$547.99
$547.99
$547.99 100 bu. $5.47/bu.
$547.99
$547.99
Yield Sensitivity Analysis
Cost of Production ÷
Yield = Break-even Price
$547.99
$547.99
$547.99 $7.49 73.1 bu./acre
$547.99
$547.99
Whole Farm Budget
Goal is to find the optimal combination of enterprises based on:
Maximizing profit Resources Moving towards long term goals Crop rotations
Take your management to the next level: use linear programming in Microsoft Excel to determine profit maximizing enterprise combination for your resources.
Whole Farm Budget
Quantity UnitPrice or
Cost/UnitTotal Value
or CostGross Revenue
Wheat Grain 50,000 bu. $7.49 $374,500.00Alfalfa 1,445 ton $200.00 $289,000.00
Total Gross Revenue $663,500.00Operating Expense
Wheat Grain 500 acre $116.49 $58,245.00Alfalfa 250 acre $250.00 $62,500.00
Total Operating Expenses $120,745.00Net Returns Above Operating Expenses $542,755.00Ownership Expense
Machinery Depreciation $10,500.00Machinery Interest $17,000.00Machinery Taxes & Insurance $7,500.00Land $300,000.00Miscellaneous Overhead $6,000.00
Total Ownership Expenses $341,000.00Total Expenses $461,745.00Profit (Return to Management) $201,755.00
Management Fee $187,500.00Profit (Return to Risk) $14,255.00
Whole Farm Budget2013 Crop Year
Cash Flow Budgeting
Cash flow budgets estimate cash inflows and outflows for the
crop year. Inflows – sales, new loans, crop payments, sale of capital assets Outflows – expenses, loan repayment, taxes
Critical for strategic and tactical management. Anticipates cash shortages Analyzes ability to repay loans Determine manageable amounts for borrowed capital
Cash flow is concerned with timing.
Cash Flow Budgeting
Farm/Ranch Name Columbia Basin Farms Co.Total January February March April May June July August September October November December
Beginning cash balanceOperating ReceiptsCapital ReceiptsNon Farm Income
Investment IncomeTotal Cash Inflow
Operating ExpensesFeed and grainHired LaborInsuranceProperty taxesRepairsSuppliesUtilities
Total Cash Operating Expenses
Capital ExpendituresOther Expenditures
Family living expense Income Taxes
Scheduled Debt RepaymentsTotal Cash OutflowCash Available
New BorrowingPayments on New Short Term DebtTotal New Debt PaymentsEnding Cash Balance
Farm/Ranch Name Snake River RanchTotal January February March April May June July August September October November December
Beginning cash balance 5,250 22,690 3,265 7,730 19,345 14,950 34,975 27,725 94,525 75,235 43,935 76,615Operating Receipts
Wheat Sales 95,150 30,400 27,000 37,750Feeder livestock 72,750 72,750
Capital ReceiptsBreeding livestock 13,600 1,600 12,000
Non Farm IncomeInvestment Income 1,950 975 975
Total Cash Inflow 609,690 37,250 23,665 15,265 7,730 19,345 41,950 34,975 101,450 94,525 75,235 81,685 76,615
Operating ExpensesFeed and grain 4,760 775 775 675 785 675 1075Fertilizer 21,600 9,000 12,600Hired Labor 7,800 2,600 2,600 2,600Property taxes 4,720 2,360 2,360Supplies 1,240 220 285 325 410Utilities 2,560 365 325 300 225 195 175 125 125 130 155 195 245
Total Cash Operating Expenses 42,680 10,360 1,100 3,335 510 195 2,775 3,050 2,725 15,090 1,350 870 1,320
Capital ExpendituresBreeding Livestock 6,400 6,400
Other ExpendituresFamily living expense 51,800 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 5,600 Income Taxes 8,675 8,675
Scheduled Debt RepaymentsLong Term - interest 10,550 900 9,650 - principal 45,800 7,800 38,000
Total Cash Outflow 165,905 14,560 20,400 7,535 13,385 4,395 6,975 7,250 6,925 19,290 5,550 5,070 54,570Cash Available 443,785 22,690 3,265 7,730 -5,655 14,950 34,975 27,725 94,525 75,235 69,685 76,615 22,045
New Borrowing 25,000 25,000Payments on New Short Term Debt 25,750 25750Total New Debt Payments 25,750 25,750Ending Cash Balance 22,690 3,265 7,730 19,345 14,950 34,975 27,725 94,525 75,235 43,935 76,615 22,045
Personal Budgeting
You need to keep your personal finances separate from the
business. Elevates false sense of security Manage personal lifestyle Preparation for retirement, college, life events
Monthly budgets should consider all income, expenses, and savings. 0-based budget Variable income? Budget off your lowest average income
Personal Budgeting Fundamentals
Personal Budget Categories
Income: Family farm expenses
(salary) Spouse’s income Non-farm income
Expenses: Tithe & Charitable Giving (10%) Food (5-10%) Housing (25-30%) Utilities (5-10%) Transportation (10-15%) Clothing (2-7%) Savings (5-10%) Medical (5-10%) Personal (5-10%) Recreation (5-10%)
Developing personal budgets takes time and patience.
It will take at least 3 months to have an accurate budget
Personal budgets should be developed for each month. Revenue and expenses should reflect time of year, holidays,
traveling, birthdays, and other important events
Update your budget with actual numbers several times a month. This will help you stay on track and meet goals
Personal Budget Reminders
Homework
Gather information for your enterprise budgets, cash flow budget, and whole farm budget.
Complete your enterprise budgets, cash flow budget, and whole farm budget.
Calculate your break-even price, break-even yield, and cost of production.
Complete your personal budget for this month.
Take a minute to write down one or two ideas or takeaways
from this lesson.
One Minute Takeaway
Sieverkropp Consulting LLC.
Contact: Elizabeth Sieverkropp [email protected] (509) 398-6858
Website: www.sieverkroppconsulting.com
Training Program Homepage:www.sieverkroppconsulting.com/fsa-borrower-training-program-homepage