2. ADVANCE AGRIBUSINESS FARM RANCH BUSINESS MANAGEMENT

3. SETTING GOALS Why do we set goals? –1–1–1–1. To plan for the future. –2–2–2–2. To keep from making emotional decisions by having a plan, in writing. –3–3–3–3. To enhance communication by getting all parties involved view points and inputs.

4. 5 GOAL SETTING STEPS 1. Be specific. 1. Be specific. 2. Set a time line. 2. Set a time line. 3. Be realistic. 3. Be realistic. 4. Write it down. 4. Write it down. 5. Know what is involved to obtain the goal and determine how important it is to you. 5. Know what is involved to obtain the goal and determine how important it is to you.

5. S.M.A.R.T. SPECIFIC SPECIFIC MEASURABLE MEASURABLE ATTAINABLE ATTAINABLE REALISTIC REALISTIC TIMELY TIMELY S M A R T

6. GIVE YOUR SELVES A HAND

7. DEFINING BUDGETS Budgets are planning tools. Budgets are planning tools. Budgets help you compare income and expenses for different enterprises and alternative plans of actions. Budgets help you compare income and expenses for different enterprises and alternative plans of actions. Budgets help you form your course of action. Budgets help you form your course of action.

8. Types of Budgeting Cash flow budget. Cash flow budget. Enterprise budget. Enterprise budget. Partial budget. Partial budget. Whole-farm or ranch plan and budget. Whole-farm or ranch plan and budget. Family living expenditure budget. Family living expenditure budget. All budgeting starts with making a plan All budgeting starts with making a plan

9. CASH FLOW BUDGET

10. What is a Cash Flow Budget? EEEEstimate of all cash receipts. EEEEstimate of all cash expenditures. CCCCash expense occurring in a certain time period. Monthly Bimonthly Quarterly Yearly RRRRecords only money movement.

11. Estimate and Cash

12. Management Tool  Goal planning.  Tests your farm plan.  Projects operating credit needs and time frame.  Loan repayment schedule.  Compare to actual cash flow.  Communicate you farming plans to others.  Use past financial and production records.

13. Cash Flow Budget Making a Plan  Outline Example Production plans for the year. Production plans for the year. Crop production plans 500 acres of corn 400 acres of soybeans 50 acres of hay 80 acres of pasture Livestock production plans 224 litters, farrow to finish swine

14. Take Inventory  Livestock on hand.  Crops in storage now.  Use a recent financial balance sheet

15. Estimate Feed Requirements  Use county enterprise budgets  Use your past feed records.

16. Estimate Feed Available  Beginning Inventories  Estimate the quantity of feed purchases needed  Quantity available to sell.  Adjust the livestock program to fit

18. Actual Cash Flow Budget Income or Cash Inflow  Cash on hand.  Livestock sales. Livestock on hand. Livestock on hand. Livestock to be produced during the year. Livestock to be produced during the year. Exclude animals to be carried over to next year or held back for breeding stock. Exclude animals to be carried over to next year or held back for breeding stock.  Include sales of breeding stock that will be culled.  Livestock product sales. milk or wool. milk or wool.

19. Things to Remember  Reflect expected seasonal price patterns.  Stay on the conservative side.  Prepare budgets at two or three price levels.

20. Plan Sales of Non-feed Crops and Excess Feed  Consider crops in inventory. Beginning of the year. Beginning of the year. Crops to be harvested. Crops to be harvested. Carry over grain for feed for next year. Carry over grain for feed for next year. Other crops normally sold in the following year. Other crops normally sold in the following year.  Plan timing of sales.  Estimating Crop Prices. Outlook forecasts. Outlook forecasts. Seasonal price patterns. Seasonal price patterns. Conservative price estimates. Conservative price estimates.  revise your marketing plans to meet capital needs.

21. Estimate Income from Other Sources  Government payments.  Custom machine work income.  Income from off-farm work, rental property, or other business activities.  Interest, dividends, patronage refunds, etc.

22. Project Crop Expenses and Other Farm and Family Living Expenditures UUUUse last year’s expenditures. DDDDetailed field-by-field production plans or field maps. CCCContract agreements. property taxes, property. Liability insurance premiums. Fixed cash rents. LLLLast year’s living expenses for changes in. Family circumstances. Inflation. TTTTax estimate. EEEExpenses should be spaced through the year. Place expenses during period of payment, not use. Use your best judgment. Remember seasonal peaks.

23. Estimate Operating Surplus.  Add total projected cash inflows for the year and for each month.  Add total projected cash outflows for the year and for each month.  Subtract total cash outflows from total cash inflows to determine net operating surplus.

24. Consider Capital Purchases  Machinery & equipment.  Land.  Additional breeding livestock.  Major machinery expenses.  Construction or improvement of buildings.

25. Summarize Debt Repayment  Recent  Recent financial statement. Debts Debts that you have already acquired. Calculate Calculate the interest.

26. Calculate the Cash Flow Surplus or Deficit  Add the operating surplus for each month to New Term Loans  Subtracting capital purchases and loan payments  Positive Estimates  Negative Estimates

27. YOU SURVIVED !!!!!!!

28. Enterprise Budgets

29. What is an Ag Enterprise?

30. What is an Enterprise Budget? Enterprise budgets record: Income Income or revenue. Expenses. Expenses. Returns Returns (profits or losses). For For a single crop or livestock production center. Enterprise budgets help determine. Should Should an enterprise be expanded or eliminated. They They help to compare management practices. Enterprise budgets are typically one unit measurements. One One acre for crops. head for livestock. This This permits easy comparisons between different enterprises. Enterprise budgets are usually for one year.

31. Enterprise Budgets A Management Tool Types of Enterprise Budgets. Planning Planning Enterprise Budget. Financial Financial Analysis Enterprise Budget. Identify the most profitable enterprises. Provide a basis for partial budgeting. They contain data needed to compute. Cost Cost of production. Break-even Break-even analyses.

32. SINGLE: Single enterprise. Single enterprise. single unit. single unit.

33. Incomes must be kept separately. Expenses must be kept separately. Record transfers from one enterprise to another with in the farm. Allocation of costs. Electricity. Electricity. Water. Water. Certain Certain feeds.

34. Format of an Enterprise Budget Four Parts. Income/receipts/revenue. Income/receipts/revenue. Variable Variable or operating expenses. Fixed Fixed expenses. A bottom line or summary

35. Income/Receipts/Revenue The name of the revenue. Source.Quantity.Unit. Price per unit.

36. Additional Considerations Pricing

37. Income Definitions Cash payments for production sold (crops, livestock, or livestock production). Government program payments. Cash insurance payment for damages. Non-cash revenues for feed fed to other internal livestock enterprises. Non-cash revenues for livestock transferred to other internal livestock enterprises. Non-cash revenues for residue.

38. Costs Operating Cost, Variable Costs, Direct Costs. Labor Costs. Labor Costs. Capital Costs, Fixed Costs, Indirect Costs. Labor Costs. OPERATING COSTS CAPITAL COSTS VARIABLE COSTS FIXED COSTS DIRECT COSTS INDIRECT COSTS

39. Allocating Costs Based on intent. Major Major use by more then one enterprise. use by one enterprise. Unpaid labor & management (operator's Salary).

40. Cost and Returns Summary Returns Over Operating Costs or Gross Margin. Return to Labor and Management. Profit/Loss. Income - OP Costs = GM GM – Fixed Costs = Return to Labor Return to Labor – Labor Costs = Profit/Loss

41. Summary Enterprise budgets can be used as a planning tool or an analysis tool. They can help the farm manager better understand the pros and cons of a component of their business. Producing sound enterprise budgets requires: Detailed understanding of an enterprise’s production practices Detailed understanding of an enterprise’s production practices Generating income. Incurring variable costs. Fixed costs. An understanding of the basic budgeting framework. An understanding of the basic budgeting framework. Sound enterprise budgets provide more information than just the enterprise’s profitability. They identify the most profitable enterprises on a farm. They identify the most profitable enterprises on a farm. They provide the basis for partial budgeting and cost of production calculations. They provide the basis for partial budgeting and cost of production calculations. They can be used to produce break-even price and/or production analysis. They can be used to produce break-even price and/or production analysis.

42. Two down Two to go

43. PARTIAL BUDGETING A TOOL TO ANALYZE FARM BUSINESS CHANGES

44. What is a Partial Budget?  Evaluates the financial effect of incremental changes.  Includes resources that will be changed.  Does not consider the resources in the business that are left unchanged.

45. Partial Budgeting Principles 1. Increase in income. 2. Reduction or elimination of costs. 1. Increase in costs. 2. Reduction or elimination of income.

46. Partial Budget Components  The left hand column has items that increase income.  right hand column has items that reduce income.  The top half deals with income increase and decreases.  The bottom half reports expenses decreases and increases.  a subtotal for each column.  a grand total.

47. Added Income  Use realistic yields, product quality and prices.  Use average prices.  Use average quality.

48. Added Costs  Increased  Increased expenses. CostsCosts of production. Non-cashNon-cash costs.  Labor.  Depreciation.

49. Reduced Costs  Crop or livestock expenses no longer incurred.  Non-cash costs.

50. Partial Budget Summary  Total each of the two factors in column 1.  Repeat the process for column 2.  Then take column 1 (added income/reduced cost) and subtract column 2.  A positive number indicates a profit.

51. Example

52. Conclusion  Systematic approach  Estimate  Repeating the analysis using different assumptions  Risk management

53. CELEBTATION TIME!!!!!

54. WHOLE FARM BUDGETS

55. WHAT IS A WHOLE FARM BUDGET? The The last step in the budget process. Estimate Estimate cash inflow, inflow, outflow outflow and liquidity. Compare Compare alternative plans for: Profitability. Profitability. Liquidity. Liquidity. Evaluate Evaluate the effects of changing other parts of the farm plan. Estimate Estimate the need and availability of resources. Land. Land. Capital. Capital. Labor. Labor. Feed. Feed. Irrigation Irrigation water. Present Present farm plan to: Banker. Banker. Landlord. Landlord. Partner. Partner.

56. Building a Whole Farm Budget Parts of the budget: Parts of the budget: Income. Income. Variable Expenses. Variable Expenses. Fixed Expenses. Fixed Expenses. Bottom Line. Bottom Line.

57. Income or Revenue Calculated by multiplying the income per unit by the number of units to be produced. Calculated by multiplying the income per unit by the number of units to be produced. Other income. Other income.

58. Variable Cost Calculated by multiplying the costs per unit by the number of units to be produced. Calculated by multiplying the costs per unit by the number of units to be produced.

59. Fixed Costs Costs not already included with any other enterprises. Costs not already included with any other enterprises.

60. Net Farm Income Add the variable and fixed expenses together to get total expenses. Add the variable and fixed expenses together to get total expenses. Subtract the total expenses from the total income. Subtract the total expenses from the total income.

61. Alternative Plans Analyses the budget. Analyses the budget. Long-Range budgets. Long-Range budgets. Use Long-term price averages. Use Long-term price averages. Use long-term yield averages. Use long-term yield averages.

62. THE END