1. HOW TO USE ENTERPRISE BUDGETS By Sherrill Nott, Roger Betz, and Gerald Schwab Day 3: 10:30 -- 11:30 a.m.

3. Profit MachinesBarns CowsHogsBeef HaySilageGrain Cash Crops Building Blocks for a Farm Business

4. Enterprise (or Profit Center): Defined: Any segment of the business that can readily be separated by accounting procedures; i.e. separated according to its income and selected variable expenses

5. Enterprise Budget Profit Center Defined: The projected income, expenses, and resource needs of a productive activity of the farming business on a per unit basis. For one unit  Usually an income unit

6. Enterprise Budget Profit Center In farming the unit is usually  One acre of land  One animal -- dairy cow, feeders  One litter -- swine

7. Enterprise Budget - Accounting Basis Profit Center Format: Heading for identification +Income = yield x price -Variable costs = Amount x cost =Gross margin (returns over variable costs) -Then fixed costs (if allocated) =Bottom line accounting profit measure

8. Enterprise Budget - Economic Basis + Accounting Profit (Loss) -Opportunity Cost of Resources =Economic Profit (Loss)

9. Opportunity Cost Defined: The cost of using a resource in one way is the return that could be earned from using that resource in its next best, most profitable alternative use.

10. Enterprise Budget - Economic Basis Uses: To determine enterprises to include in Farm Plan that best satisfy farm goals.

11. Enterprise Budget - Accounting Basis Profit Center Uses: Plan resource needs; e.g. seed, chemical, fertilizer Building blocks for doing forward planning Unit blocks for partial budgeting Determine own cost of production Determine potential accounting profit (loss)

12. FINLRB Financial Long Range Budgeting Current balance sheet  Market value realistic?  Debt repayments correct? Data bank of enterprise budgets  Crops  Livestock  Feed prices  Sales price less than purchase cost Then, and only then, you can start: Long Range Planning (FINLRB)

13. FINLRB Enterprise Budgets Are on a gross margin basis Variable cost items can be stipulated by user

14. Gross Margin Plan for A B C Farm Less A BC === =

15. A Computerized Farm Planning and Analysis System

16. Create budgets here!

18. Scroll down It’s a Feed crop!

20. These feeds are in addition to purchased feed above!

21. Prices used to: Sell “extra” feed not eaten by livestock Purchase “required” feed not grown for livestock

22. Your FINLRB Base Plan: First pass through FINLRB is to get a base plan Base plan is based on what actually happened last year Base plan to verify accuracy of your enterprise budgets

23. Strategy to Help Assure Accuracy FINLRB projection - Recreate past history in Base Plan Production assumptions, yield, sale prices Expenses per unit of production (feed, supplies, seed) Does base plan match the FINAN? Can you justify differences? - Prices, yields People tend to under estimate cost and over estimate yields and price. (Sold corn for $2.46, but did I include marketing cost in the expenses?) May take 90% of your time getting the base plan modeled properly

24. Financial long range budgeting

25. Your farm plan in FINLRB Acres of various crops, by enterprise Number of livestock, by enterprise $’s of “Related Operating Expenses” that were not allocated directly to an enterprise –Fuel & Oil “Other Information” –Family living draw, etc.

26. Set the crop plan Scroll button This many available?

27. Livestock plan … do you have the barn space? Animal Enterprises

29. This is the last input screen

30. Future Plans Alternative 1 in FINLRB You’re convinced... your base plan is complete and accurate Next year you might want to see the impact of:  Price changes  Alternative crops  Changes in animal numbers

31. New Capital Investment Plans Land Facilities Site preparation Breeding livestock Machinery and equipment Start up cost - getting the system filled up Debt financing terms

32. After Base Plan is modeled properly, then make your changes for each alternative Look at one change at a time Try to keep consistent across alternatives  Compare “apples” to “apples”

33. Next Year’s Plan Once your base plan is fine tuned, it’s time to move on to the next alternative, which might be your plan for next year. Go back to FINLRB input and change the “Number of Plans,” OR Copy forward the base plan as most “OPERATING” and “OTHER” total dollars will stay the same

34. Do above; get an “empty” alternative column

35. This choice gets another column = exact copy …. You then change the numbers. Next to last choice in drop down edit menu

36. Now fine tune Alt 1

37. Your FINLRB For the remainder of the time:  Build and error check your data bank  Fine tune your base plan (last year)  Set up Alternative 1 (next year’s plan)