HOW TO USE ENTERPRISE
BUDGETS
By Sherrill Nott, Roger Betz,
and Gerald Schwab
Day 3: 10:30 -- 11:30 a.m.
Building Blocks
for a Farm
Business
Profit
Machines
Cows
Barns
Hogs
Beef
Cash
Hay
Silage
Grain
Crops
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
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
Enterprise Budget
Profit Center
• In farming the unit is
usually
One acre of land
One animal -- dairy
cow, feeders
One litter -- swine
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
Enterprise Budget - Economic Basis
+ Accounting Profit (Loss)
- Opportunity Cost of Resources
= Economic Profit (Loss)
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.
Enterprise Budget - Economic Basis
Uses:
• To determine enterprises to include in
Farm Plan that best satisfy farm goals.
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)
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)
FINLRB Enterprise Budgets
• Are on a gross margin basis
• Variable cost items can be stipulated by
user
Gross Margin Plan for A B C Farm
A
B
C
Output
Output
Output
Less
Less
Variable Costs
Variable Costs
=
=
Gross Margin
Gross Margin
Total Farm Gross Margin
Less
Fixed Costs
=
PROFIT
Less
Variable Costs
=
Gross Margin
A Computerized Farm Planning and Analysis System
Create budgets here!
It’s a Feed crop!
Scroll
down
These feeds are in addition to purchased feed above!
Prices used to:
Sell “extra” feed not eaten by livestock
Purchase “required” feed not grown for livestock
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
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
Financial long range budgeting
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.
Set the crop plan
Scroll button
This many available?
Animal
Enterprises
Livestock plan … do you have the barn space?
This is the last input screen
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
New Capital Investment Plans
•
•
•
•
•
•
•
Land
Facilities
Site preparation
Breeding livestock
Machinery and equipment
Start up cost - getting the system filled up
Debt financing terms
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”
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
Do above; get an “empty” alternative column
This choice gets another
column = exact copy
…. You then change
the numbers.
Next to last choice in
drop down edit menu
Now fine tune
Alt 1
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)