Ag & Resource Economics Creating a Budget Written by Annette Dunlap, MBA Extension Associate Ag & Resource Economics NC State University

The Value-Added & Alternative Agriculture Start-up Toolkit Program Outline An Overview of Budgeting Fixed Expenses Variable Expenses Break-even Analysis Estimating Revenue Budget Assumptions Next steps resources The Value-Added & Alternative Agriculture Start-up Toolkit

An Overview of Budgeting Budgeting is an important piece of the planning process Budgets give you a numeric picture of your revenues and your expenses Budgets enable you to make more informed business decisions about your business The Value-Added & Alternative Agriculture Start-up Toolkit

The Value-Added & Alternative Agriculture Start-up Toolkit Fixed Expenses Expenses that stay the same, no matter how much activity you have Examples: Rent/mortgage payments on land Equipment payments Insurance premiums Salaried employees The Value-Added & Alternative Agriculture Start-up Toolkit

“Variable” Fixed Expenses Expenses that you will incur, but the amounts vary based on your activities and the time of year Examples: Hourly wages Utilities Fuel The Value-Added & Alternative Agriculture Start-up Toolkit

The Value-Added & Alternative Agriculture Start-up Toolkit Variable Expenses Expenses that differ with the amount of business you conduct or the amount of activity you have Examples: Cost of seed or livestock Cost of fertility method Choice of feed Cost of marketing and selling The Value-Added & Alternative Agriculture Start-up Toolkit

The Value-Added & Alternative Agriculture Start-up Toolkit Break-Even Analysis The point at which revenues equal costs Break-even can be computed as break-even based on units and break-even based on sales The Value-Added & Alternative Agriculture Start-up Toolkit

Break-even Equations Break-even based on units: Annual Fixed Cost [1-(Average per unit VC/Average per unit SP)] Break-even based on sales: Average Annual Fixed Cost (Average per unit SP – Average per unit VC) VC = variable cost; SP = sales price The Value-Added & Alternative Agriculture Start-up Toolkit

The Value-Added & Alternative Agriculture Start-up Toolkit Estimating Revenue Revenue is often estimated based on the best available data. One possible measure of revenue is: MP = n x q x p Where MP = total market potential; n = the potential number of buyers in the market; p = the average quantity purchased by the buyers; and p = the average price per unit The Value-Added & Alternative Agriculture Start-up Toolkit

The Value-Added & Alternative Agriculture Start-up Toolkit Budget Assumptions Budgets are snapshots in time – subject to change as we get more information Reconfigure your budgets as you move forward in your business cycle The Value-Added & Alternative Agriculture Start-up Toolkit

The Value-Added & Alternative Agriculture Start-up Toolkit Resources For another discussion on the use of enterprise budgets, visit: http://agalternatives.aers.psu.edu/farmmanagement/enterprise/ enterprise_budget_analysis.pdf For a further discussion of break-even analysis, visit: http://cpa.utk.edu/pdffiles/adc3.pdf To gain access to various generic enterprise budgets, visit: http://cals.ncsu.edu/value-added/budgets.html North Carolina-based budgets are available at: http://www.ag-econ.ncsu.edu/extension/Ag_budgets.html For additional guidelines on budgeting, including a budget for aquaculture, visit: http://extension.agron.iastate.edu/sustag/enterprisebudgets/default.htm To access enterprise budgets for other regions of the country, visit: http://newfarm.osu.edu/enterprisebudget/enterprisebudgetindex.html The Value-Added & Alternative Agriculture Start-up Toolkit