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

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  Budget units and time period  Make adjustments for:  Double cropping  Storage costs  Establishment costs  Breeding herd replacements Budgeting Considerations

 Analyzing Enterprise Budgets Price per bushel ($)Break-even Yield (bu) $ $ $ Yield (bu.)Break-even Price ($) 90$ $ $7.98

Total Cost (Total expenses per acre) Yield (per acre) Cost of Production (per bushel) To Solve for Cost of Production: Total Cost (Total expenses per acre) $ Yield (per acre) 100 Cost of Production (per bushel) $5.48/bu.

To Solve for Break-even Yield: Total Cost (Total expenses per acre) Output Price Break-even Yield (bu./acre) Total Cost (Total expenses per acre) $ Output Price $7.49 Break-even Yield (bu./acre) 73.1

To Solve for Break-even Price: Total Cost (Total expenses per acre) Yield (per acre) Break-even Price ($/acre) Total Cost (Total expenses per acre) $ Yield (per acre) 100 bu. Break-even Price ($/acre) $5.48

 Price Sensitivity Analysis Cost of Production ÷Yield =Break-even Price $ bu.$5.47/bu. $547.99

 Yield Sensitivity Analysis Cost of Production ÷Yield =Break-even Price $ $ bu./acre $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

 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

 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 (509) Website: Training Program Homepage: program-homepage