Enterprise Budget Fundamentals Farm Business Planning – Lesson 1

A Project Funded by: USDA BFRDP Grant # Development Partners Include: Mississippi State University National Association of Agricultural Educators Oklahoma State University Agricultural Economics Department Oklahoma Cooperative Extension Service

Budgets Definition of budget: An estimate of costs, revenues, and resources over a specified period, reflecting a reading of future financial conditions and goals. Another way to think about budgets: List all potential revenue and expenses for a enterprise to determine if you will make or lose money

Annual financial planning tool Compare potential profitability of enterprises Determine alternatives for inputs (expenses) Implement plan – revise as situation warrants Assess successes/failures—Analysis Enterprise Budgets

Concerned with the economic ADVISABILITY of a project ▫ Will I make money or not with this project? Concerned with the economic ADVISABILITY of a production alternative ▫ Should I plant corn or wheat? Projects returns to unpaid factors of production and management ▫ Unpaid factors include:  Family labor  Owner’s equity Enterprise Budgeting

Compare alternate enterprises ▫ RoundUp ® Ready or conventional alfalfa seed? ▫ Horses or cattle? ▫ Grass stockers or hay production/sale? Compute breakeven price and production ▫ What sales price do returns = 0? ▫ What output level do returns = 0? How to use Enterprise Budgets

Historical costs and production—if you have historical production! Published data ▫ Experiment Station data ▫ Web research ▫ Online budgets  OSU Budget generator—Need access? Call us! (  National Budget library ( Generating Enterprise Budgets

Revenues ▫ Cash  Sales  Services ▫ Non-cash  Increase in the value of raised breeding livestock Expenses ▫ Cash ▫ Non-cash  DEPRECIATION Returns to unpaid labor, management and capital = Revenues - Expenses Enterprise Budget Format

Budget Decisions Once a budget is made you need to decide if: The project is profitable or sustainable over several years If the project is profitable, does the profit justify the unpaid labor you will supply? If the project is not profitable, can you lower inputs or change your business plan to make it profitable…

Special Thanks to: USDA BFRDP Grant Program Oklahoma State University ▫ Eric A. DeVuyst, Department of Agricultural Economics National Association of Agricultural Educators