Shannon Dill
University of Maryland Extension
Talbot County
sdill@umd.edu
410-822-1244
UNIVERSITY OF MARYLAND EXTENSION
Objectives
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Enterprise budgeting
How to Create a Budget
Example
Tracking costs
Financial Statements
UNIVERSITY OF MARYLAND EXTENSION
Contents of a Business Plan
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•
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Executive Summary
Mission and Goals
Background Information
Farm Strategy
Marketing Strategy and
Plan
• Enterprises Analysis and
Plan
• Financial Plan
• Management Plan
• Implementation
Strategy
• Resource Inventory
*Note the action words!
UNIVERSITY OF MARYLAND EXTENSION
Enterprise Budget
- An organized listing of your estimated
gross income and costs which can be
used to determine the expected net
income for a particular enterprise
- Divides costs and returns for each
enterprise
- Helps to determine the productivity of
enterprises and if a business should
continue or change enterprises
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Budget on a per unit basis
• ex 1 acre, 1 bushel, 1 ton
- Sections include
• Income, Expenses, Profit
UNIVERSITY OF MARYLAND EXTENSION
Enterprise Budgets:
• Determine profitability of one enterprise
versus another.
• Understand breakeven cost and pricing points
for that enterprise
• Understand input structure such as labor
inputs, chemical inputs, fixed equipment cost
per dollar returned.
• Plan crop rotation schedules and product mix
UNIVERSITY OF MARYLAND EXTENSION
Budgets are Used for
• Itemize the receipts (income) received for an
enterprise
• List the inputs and production practices
required by an enterprise
• Evaluate the efficiency of farm enterprises
• Estimate benefits and costs for major changes
in production practices
UNIVERSITY OF MARYLAND EXTENSION
Budgets are Used for
• Provide the basis for a total farm plan
• Support applications for credit
• Inform non-farmers of the costs incurred in
producing crops
• Not an exact science – Budgets are estimates drought, disease etc
UNIVERSITY OF MARYLAND EXTENSION
Who can use these budgets?
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Agricultural producers
Extension specialists
Financial institutions
Governmental agencies
Advisors of food and fiber
UNIVERSITY OF MARYLAND EXTENSION
5 Parts of a Budget
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Investment/Start Up
Gross Income
Variable Costs
Fixed Costs
Net Income
UNIVERSITY OF MARYLAND EXTENSION
Income
Costs
Net
Income
Some have more
detail than
others
Decision
Tools
UNIVERSITY OF MARYLAND EXTENSION
Budget Suggestions
• Should be prepared with specific objectives
– Markets, establishment, soil types, management
• Receipts and costs are often difficult to estimate
– Numerous, variable
– Be sure to have a column of YOUR estimates
• Should contain receipts for every product and by
product – processing, stalks etc
• Prices used should reflect market values and
productivity of enterprise resources
– ie land, labor, equipment
UNIVERSITY OF MARYLAND EXTENSION
How to Create a Budget
• Internet search “_____ Enterprise Budget
Extension”
– These will NOT be your numbers but will be a
good guide
• Determine your unit – per acre, half acre,
bushel
• Identify potential variable costs and fixed
costs
• Start estimating and pricing
UNIVERSITY OF MARYLAND EXTENSION
Income (receipts)
• Determine yield goals
– High, medium and low estimate
• Prices
– High, medium and low estimate
UNIVERSITY OF MARYLAND EXTENSION
Revenue
• Price x Units Sold= Gross Revenue
CROP: Specialty Greens
ITEM
1&1/2 HOUSES PLUS 1/2 ACRE OUTSIDE 2009
UNIT
QUANTITY
PRICE
TOTAL
INCOME
CASE
630.00
$12.50
$7,875.00
UNIVERSITY OF MARYLAND EXTENSION
Enterprise Budget
Price
(Revenue)
Contribution
Variable Costs
Break-even
Fixed Costs
Profit
Slide Adapted from: Dr. Wen-fei Uva
Department of Applied Economics and Management
Cornell University
UNIVERSITY OF MARYLAND EXTENSION
Cost Components
• Variable costs –
– These are expenses that vary with output within a
production period
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Feed
Seed
Fuel
Fertilizer/Lime
Disease/Insect control
– Don’t forget to include labor and crop insurance.
UNIVERSITY OF MARYLAND EXTENSION
CROP: Specialty Greens
1&1/2 HOUSES PLUS 1/2 ACRE OUTSIDE 2009
ITEM
UNIT
QUANTITY
PRICE
TOTAL
INCOME
CASE
VARIABLE/OPERATING COSTS
SEEDS
POTTING SOIL MEDIA
FERTILIZER
N
P
K
INSECTICIDE
DIPEL
MALATHION
GREENHOUSE FUEL
SOIL TEST
LIME
LABOR—WEEDING, HARVESTING & PACKING
PACKING BOXES
INTEREST ON OPERATING CAPITAL
TOTAL VARIABLE COSTS LISTED ABOVE
630.00
$12.50
$7,875.00
5.00
5.00
$15.50
$19.35
$77.50
$96.75
POUNDS
POUNDS
POUNDS
45.00
45.00
45.00
$0.48
$0.51
$0.28
$21.60
$22.95
$12.60
POUNDS
OUNCES
GALLONS
ACRE
TON
1.00
8.00
300.00
1.00
0.50
$12.50
$0.25
$2.25
$6.50
$35.00
$12.50
$2.00
$675.00
$6.50
$17.50
125.00
630.00
2,228.90
$7.50
$0.55
7.0%
$937.50
$346.50
$78.01
$2,306.91
OUNCES
BAG (3.8CF)
HOURS
UNIT
APR
UNIVERSITY OF MARYLAND EXTENSION
Cost Components
• Fixed Costs
– Fixed costs are expenses that do not vary with the
level of output.
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Building costs
Machinery costs
Taxes
Insurance
Mortgage
UNIVERSITY OF MARYLAND EXTENSION
Fixed Costs
• These can also be difficult to estimate at times
– Fixed costs need to be allocated over each enterprise
– Vary because size, new, used, field operations
– Land should be valued
UNIVERSITY OF MARYLAND EXTENSION
DIRTI
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Deprecation
Interest
Repairs/Maintenance
Taxes
Insurance
UNIVERSITY OF MARYLAND EXTENSION
FIXED/OVERHEAD COSTS (SEE FIXED COST ALLOCATION SUMMARY)
EQUIPMENT DEPRECIATION
FARM
1.00
$1,678.70
$1,678.70
INTEREST PAYMENT
FARM
1.00
$1,390.42
$1,390.42
REPAIRS
FARM
1.00
$853.96
$853.96
TAXES
FARM
1.00
$153.71
$153.71
INSURANCE
FARM
1.00
$580.70
$580.70
$65.00
$65.00
LAND CHARGE
TOTAL FIXED COST LISTED ABOVE
$4,722.50
TOTAL VARIABLE AND FIXED COST
$7,029.41
NET INCOME OVER VARIABLE & FIXED COSTS
$845.59
UNIVERSITY OF MARYLAND EXTENSION
Allocating Fixed Costs
• Excel
• Farm Software
– Fasttools
• http://www.farmdoc.uiuc.edu/
– Ag Decision Maker
• http://www.extension.iastate.edu/agdm/
• Custom Rates
UNIVERSITY OF MARYLAND EXTENSION
http://pubs.ext.vt.edu/446/446047/PDF_MCombo07.pdf
UNIVERSITY OF MARYLAND EXTENSION
UNIVERSITY OF MARYLAND EXTENSION
Net Income
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Revenue – Variable Costs – Fixed Costs =
Net Income
Expected income
Income over variable costs
Income over variable and fixed costs
Decision making time….
UNIVERSITY OF MARYLAND EXTENSION
Sensitivity Analysis
PRICES
NET INCOME ABOVE VARIABLE AND
YIELDS
$9.38
$12.50
$15.63
FIXED COSTS LISTED ABOVE FOR
473
($2,599.73)
($1,123.16)
$353.40
VARIOUS YIELDS AND PRICES
630
($1,123.16)
$845.59
$2,814.34
788
$353.40
$2,814.34
$5,275.27
UNIVERSITY OF MARYLAND EXTENSION
EXAMPLE
CROP: Specialty Greens
ITEM
1&1/2 HOUSES PLUS 1/2 ACRE OUTSIDE 2009
UNIT
QUANTITY
PRICE
TOTAL
INCOME
CASE
VARIABLE/OPERATING COSTS
SEEDS
POTTING SOIL MEDIA
FERTILIZER
N
P
K
INSECTICIDE
DIPEL
MALATHION
GREENHOUSE FUEL
SOIL TEST
LIME
LABOR—WEEDING, HARVESTING & PACKING
PACKING BOXES
INTEREST ON OPERATING CAPITAL
TOTAL VARIABLE COSTS LISTED ABOVE
630.00
$12.50
$7,875.00
5.00
5.00
$15.50
$19.35
$77.50
$96.75
POUNDS
POUNDS
POUNDS
45.00
45.00
45.00
$0.48
$0.51
$0.28
$21.60
$22.95
$12.60
POUNDS
OUNCES
GALLONS
ACRE
TON
1.00
8.00
300.00
1.00
0.50
$12.50
$0.25
$2.25
$6.50
$35.00
$12.50
$2.00
$675.00
$6.50
$17.50
125.00
630.00
2,228.90
$7.50
$0.55
7.0%
$937.50
$346.50
$78.01
$2,306.91
OUNCES
BAG (3.8CF)
HOURS
UNIT
APR
UNIVERSITY OF MARYLAND EXTENSION
FIXED/OVERHEAD COSTS (SEE FIXED COST ALLOCATION SUMMARY)
EQUIPMENT DEPRECIATION
FARM
1.00
$1,678.70
$1,678.70
INTEREST PAYMENT
FARM
1.00
$1,390.42
$1,390.42
REPAIRS
FARM
1.00
$853.96
$853.96
TAXES
FARM
1.00
$153.71
$153.71
INSURANCE
FARM
1.00
$580.70
$580.70
$65.00
$65.00
LAND CHARGE
TOTAL FIXED COST LISTED ABOVE
$4,722.50
TOTAL VARIABLE AND FIXED COST
$7,029.41
NET INCOME OVER VARIABLE & FIXED COSTS
$845.59
UNIVERSITY OF MARYLAND EXTENSION
Break Even Analysis
Fixed Costs ($)
Unit Costs ($)
=
+
Variable Costs ($)
Units Produced (lbs, dozens, bag)
$4,722.50
$11.16
=
+
$2,306.91
630 Cases
Slide Adapted from: Dr. Wen-fei Uva
Department of Applied Economics and Management
Cornell University
UNIVERSITY OF MARYLAND EXTENSION
Budget Analysis
Variable Costs per Unit
Sold
$2,306.91/630 = $3.66 Consider discontinue
if below this
(Total Variable Cost/Output in
number
Units)
$4,722.50 /630 = $7.49
Fixed Costs per Unit Sold
(Fixed Cost/Output in Units)
Break Even Output
$4,722.50 + $2,306.91
/$12.50 = 563 cases
(Fixed Cost + Variable Cost/Price
per Unit)
Net Income per Unit Sold
$845.59 / 630 = $1.34
(Net Income/Output in Units)
Need to cover this
number
Output needed to
reach breakeven
point.
Net income per unit
produced
Slide Adapted from: Dr. Wen-fei Uva Department of Applied Economics and Management Cornell University
UNIVERSITY OF MARYLAND EXTENSION
Budget Suggestions
• Should be prepared with specific objectives
– Markets, establishment, soil types
• Receipts and costs are often difficult to estimate
– Numerous, variable ie rent land
– Be sure to have a column of your estimates
• Should contain receipts for every product and by
product – processing, stalks etc
• Prices used should reflect market values and
productivity of enterprise resources
– Ie land, labor, equipment
UNIVERSITY OF MARYLAND EXTENSION
Tracking Enterprise Costs
• It is important to know the cost of each
enterprise you have
– Can be by grain/livestock or tomatoes/peppers
• This can easily be tracked in record keeping
software
UNIVERSITY OF MARYLAND EXTENSION
UNIVERSITY OF MARYLAND EXTENSION
UNIVERSITY OF MARYLAND EXTENSION
UNIVERSITY OF MARYLAND EXTENSION
DO IT!
www.extension.umd.edu/mredc
www.extension.umd.edu/newfarmer
www.agplan.umn.edu
www.mdsbdc.umd.edu/
Shannon Dill
sdill@umd.edu
410-822-1244
UNIVERSITY OF MARYLAND EXTENSION