1. Sound Financial Management: Working With Cattlemen
Dr. Alex White
Ag & Applied Economics
Virginia Tech

2. Goals for this Session Information Needs Primary financial analyses
Enterprise Accounting
Primary financial analyses
Enterprise Budgeting
Breakeven & Sensitivity Analysis

3. Incomplete Information
May lead to improper decisions
Hassle at tax time
Missed opportunities
Must have a usable record keeping system
Accurate, organized and correct methods
Efficient – time and cost
Understandable
Provides the information you need/want
Budgets, cash flows, balance sheets, income statements
Cost of production, breakevens, sensitivity analysis

4. It all starts with good farm records
Production records
Breeding, herd health, crop/pasture production
Revenue & expense records
Financial statements
Income Statement (Schedule F, Profit & Loss)
Balance Sheet
Cash Flow
Producers should have most of this info already
In some form

5. But, Is That Info Usable? For most producers – No
Most financial records are:
Summary data for the whole farm
Only look at cash transactions
Primarily for tax purposes
Estimates for loan applications & renewals
The key is Enterprise Accounting
Allocate revenues and expenses to each enterprise
Provides a lot more power to decision making!
Doesn’t take much added effort

6. Enterprise Accounting
Allocating your revenues and expenses to each enterprise
Instead of:
Annual fertilizer expense = $11,000
Record as follows:
Hay enterprise fertilizer expense = $8,000
Pasture enterprise fertilizer expense = $3,000

7. Example: Typical Records
50-cow herd, fall calving
Produce your own grass hay (~30 acres)
Pasture (~140 acres)
Total Revenues (cash) $30,000
Cash Expenses
Fertilizer $11,000
Other (feed, vet, repairs, etc.) $12,500
Return Above Costs $6,500

8. Using Typical Records So, we’re making $6,500 per year?
What can you do to improve your profits?
A. What expenses can you cut?
B. Purchase hay instead of producing hay?
C. Changes to your marketing plan?
D. Why change? We’re making profits now!
Without good records, you’re just guessing

9. “Better” Record System
Cow-Calf Enterprise Budget
Revenues
Steers (22 head x 6.5 $/cwt) $17,000
Heifers (14 head x 6 $/cwt) $9,000
Culls $4,000
Variable costs of production
Grass Hay (120 $100/T) ,000
Corn (725 $/bu) $5,000
Pasture $4,000
Other VC $5,000
Return Above VC $4,000
Fixed costs of production $2,500
Return Above TC $1,500

10. “Better” Record System
Grass Hay Enterprise Budget
Value of hay (120 T x $100/T) $12,000
Use Net Market Value
Variable costs of production
Fertilizer (N/P/K per acre) $7,500
Lime (tons/acre) $500
Other $2,000
Return Above VC $2,000
Fixed costs of production $7,000
Return Above TC ($5,000)

11. “Better” Record System
Pasture Maintenance Enterprise Budget
Value of pasture ($AUMs) $4,000
Variable costs of production
Fertilizer (N/P/K per acre) $2,500
Lime (tons/acre) $500
Other $500
Return Above VC $500
Fixed costs of production $250
Return Above TC $250

12. Using “Better” Records
Which enterprise is not profitable?
Hay
Consider purchasing your hay?
How can you reduce your hay production costs?
Can calculate breakevens
Breakeven selling price (calves, hay)
Breakeven selling weights (calves)
Breakeven hay yields
Maximum input prices
What if fertilizer prices increase by 10%?

13. Using “Better” Records
Hay enterprise is not profitable in the long run
Due to the fixed costs of the machinery
Depreciation, Interest, Property Taxes
Long run breakeven price of hay
RATC / Tons of hay
($5,000) / 120 tons = ~$42/Ton increase in price
$100/Ton current value + $42/Ton = $142/Ton necessary to be profitable
Long run – as long as hay price is less than $142/ton, more profitable to purchase hay

14. Using “Better” Records
Sensitivity to increase in hay price for your cow-calf operation (short run)
RAVC for cow calf operation / Tons of hay
= $4,000/120 Tons = $33/Ton increase
Current market price = $100/Ton
Breakeven purchase price = $133/Ton

15. Typical vs “Better”
Typical record systems do NOT provide a manager with usable information
Enterprise accounting is well-worth the added effort
Helps with
Loan applications
Farm planning
Production management
Marketing

16. “Go the Distance” Enterprise accounting  Summary info
Income Statement, Schedule F for whole farm
It doesn’t take much extra effort
Cash Flow Statement
See your monthly cash flows
Plan your operating loan needs, repayment, etc.
Balance Sheet
List your assets at net market value
List your outstanding liabilities
Track your net worth over time

17. So What? You already have this most of the information
Organize it by enterprise
Better production decisions
Better financial decisions
Sensitivity and breakeven
Partial budgeting
Looking at changes in production
Work with/impress your lender
Enterprise accounting is worth your time!

18. What Now? Find a record system that works for you:
Virginia Cooperative Extension
Farm Record Book
Oklahoma State University
“Quicken for Farm/Ranch Records”
Work with your accountant to set up a system
Codes for each enterprise (keep it simple)

19. Enterprise Budget Examples
Virginia Cooperative Extension
Livestock Budgets
Crop Budgets
NC State University Extension
Enterprise Budgets
Remember, these are examples. Customize the budgets to fit your operation!