developing enterprise budgets - ncsu
TRANSCRIPT
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Developing Enterprise Budgets
Session 4
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Review Field Day
• Soils Class? •What capital assets farms have?
•Was equipment component right for size of operation?
•What would you have added or not bought?
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Homework for Session 4
List all capital items you will need to start your farm
Buildings
Equipment
Fencing
Irrigation
Animals
Tools
In Ag Plan
Facilities
Capital request
Management Team
Personnel Plan
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Review Homework
• How did you decide on Capital Assets you need
• Equipment
• Buildings
• Irrigation
• Fencing
• Were there any surprises?
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Warm-upSmith’s Case Study
Bases on Smith’s inventory of farm resources and
capital costs eliminated
Hops, blueberries, sheep, goats, cow-calf and
pasture pork
Blackberries and agritourism
Still considering 12 enterprises
What were the considerations for
dropping these enterprises
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Smith’s Farm Goal
We would like our farm to make $20,000 net profit in 2018.
Have $30,000 for start-up costs.
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Mushroom Start Up
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Cow/Calf Fix Cost Fix Costs Years Total Per Cow
Pasture 300 12
Pasture Equipment
1,550 20 77.5 3.10
Water Infrast. 5,000 20 250 10
Fencing 23,054 20 1,053 42
Tractor 12,000 20 300 * 12
Truck 15,000 15 500 20
Equipment 12,200 15 813 32
Corral 10,000 20 500 20
Total Fix Cost $78,804 $3,794 $151
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Tractor
Purchasing a used tractor
Hours of use
Useful life around 12,000 hours
Available part and service
Three ways to buy tractor
Auctions
Dealerships
Classified ads
Fastline
Tractorhouse
Market Farm Implement
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Tools for 1-3 acres Organic Farmer Business Handbook
Bare minimum:
Shovel, rake, oscillating hoe
wheel barrow, (wheel hoe), hoses,
hand sprayer
Earthway seeder
Pick up truck
Troybuilt rototiller
(small greenhouse)
Digital platform scale (20 lb)
Scaling up:35 – 50 hp 2WD tractor
3 PTH rototiller
3 PTH mini chisels
3 PTH cultivators
Walk in cooler
Wash and pack station
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Grower to Grower
5 acre Farm
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Developing the Cost of Production Numbers
Farmer Speaker4:20-5:10
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Objectives for Session
•What are the differences between fixed and variable cost expense?
•How do we establish a farm revenue?
•How do we use capital cost estimates in enterprise budgets?
•How do we use enterprise budgets to establish breakeven prices?
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Smith’s Farm GoalWe would like our farm to make $20,000 net profit in 2018.
▪ What information do we need to know?
▪ Gross sales
▪ Amount vegetables or animals sold
▪ Prices sold each sold
▪ What inputs needed for production
▪ Labor
▪ Equipment
▪ Fertilizer
▪ Seed
▪ What machinery and equipment needed?
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Net Cash Income Per Acre
Farm Scale Range Average
<3 acres $1,854-$9,487 $5,664
3 to 6 acres $1,767-$8,547 $5,903
6-12 acres $1,331-$5,842 $3,550
>12 acres $1,103-$7,430 $3,757
Grower to grower: Creating a livelihood on a fresh market vegetable farm, p. 17(2005), John Hendrickson, CIAS Outreach Specialist
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Terms
•Enterprise budget: An estimate of the revenues and costs for the production of a certain product
• Revenue: The cash income received from an enterprise.
•Variable/ operating costs-Costs that are directly tied to the operation of a farm enterprise. Feed, seed, fertilizer, animal health costs, hired labor and fuel are common farm operating costs.
•Capital/fixed/ overhead costs- Equipment, facilities and other purchases that will be used longer than one year for farm production.
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Two Examples of Commercially Available
Individual Crop Cost Methods.
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Profit = Income – Expenses
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20
Defining Your Enterprises
Each enterprise is a “profit center.”
You define them to fit your needs!
Examples might help:
1. Fruit crops – berries,
2. Vegetables – tomatoes, peppers, okra
3. Corn maze w/ snack bar, hayrides
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Crops Budgets**From: Organic Farmers Business Handbook
Richard Wiswall
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Budgeting
•A way of estimating profit
•Organized into• Revenue Income• Variable costs• Fixed costs
• Estimates based on production, technology, and size
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Units of Production
Sales Volume = Unit of Quantity
•Sheep
• lbs. of wool
• lbs. of meat
• cwt. at auction
• number of bread ewes
• units of milk
•Chickens
• dozen eggs
• lbs. of meat
• number of chicks
• number of hens/roosters
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Units of
Production
SALES VOLUME X SALES PRICE = GROSS INCOME
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Revenue
Cash received from an enterprise
Same product may be sold at different prices to different markets
May produce more than one kind of saleable product
500 pints @ $3.00 /pint = $1,500 or
200 pints upick berries @ $2.00 =$400
100 pints prepack berries @ 2.75 =$275
200 pints sold at farmers market $600
Total Revenue $1,275
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Finding Probable Prices
• Price is one of most important factors in determining profitability
• What price or prices should I use to project revenue in a budget?
• Retail prices are obtained by selling farm products directly to customers
• Wholesale prices are usually less than retail because firms handle product between farmer sand customers
• Season average prices because prices make change with the season
• NC Farm School website pricing resources
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Variable Cost
Used in the short run
•Cash expenditures used within the year
•General directly used/consumed with crop or animal production
Changes with small changes in production scale
•Relevant to size of the operation
•No additional capitol purchases required to increase in size
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Fixed Cost
Used in the Long Run
•Capitol expenditures
•Generally not directly
consumed/used by crops or
animals
Changes with large changes
in production scale
•Relevant to size of the
operation
•Additional capitol purchases
required to increase in size
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Fixed Costs
Important for making decisions, “are we making a profit yet?”
Important for items that have a useful life > than 1 year
Deprecation is the loss of value or obsolescence of an asset over time (not related to tax deprecation)
Focus on machinery, equipment, & buildings
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Per Unit Depreciation• Assigning a depreciation value on a per hour or per unit
basis
• $20,000 new tractor- $5000 salvage value at the end of 15 years = $15,000
• $1000 per year depreciation
• Assume you are going to put 500 hours on the tractor each year
• $1000 per year / 500 hours per year = $2/ hour of use
• Assuming you are going to put 200 hours each year then• $1000 per year / 200 hours = $5/ hour
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Tractor Costs
Tractor model JD 2240 Ford 4000 Cub
Original cost/useful life 7000/25 4400/25 1000/25
Annual cost, w/o interest 280.00 176.00 40.00
Average annual repairs 500.00 300.00 200.00
Annual fuel cost @ $3/gallon 480.00 480.00 80.00
Total annual cost 1260.00 956.00 320.00
Hours used annually 200 300 60
Tractor cost/hour 6.30 3.19 5.33
Tractor with driver: $/hour 18.85 15.74 17.88
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Farmers Market Costs
Farmers’ Market Costs Cost Calculate for ONE marketLabor: load truck(s) 12.55 1 hr (2 people @0.5 hr each)
Labor: travel, set up 50.20 4 hr (2 people)
Labor: market vending 100.40 8 hr (2 people)
Labor: pack, travel, unpack,
tally sales 37.65 3 hrs (2 people)
Vehicle(s) cost at .40/mile 8.00 20 miles round trip per market
Rental fees 30.00
scales $1500, umbrellas $400, tables
$200, signs $200
Amortized FM equipment 7.67
$2300/15-year useful life/20 markets
per season = $7.67 per market
Subtotal, one market: 246.47
# of markets 6
Total costs for # markets 1478.82
Crop sales % x total market
costs 73.94
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Ten Minute Break
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Egg Budget Exercise
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In-Class Example – Chicks vs Pullets
• Complete the Chicks vs. Pullets worksheet to help define your enterprise:
Chicks Pullets
Day old chick 3 20
Feed for 6 months
Mortality 5%
Feeder and Waters 0.93
3.93 20
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High Tunnel Budgets
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Construction Cost
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Construction Cost 96’ by 30’
Companies 1 2 3
High Tunnel 7,972 6,060 8,860
Other items
Irrigation
Plastic Cover
Labor
Site Preparation
Backup heater
Water Service
Weed Matt
Delivery
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Construction CostConstruction Cost Materials Labor
Site Preparation 60 48
Greenhouse layout 10 48
Frame 5,000 576
Lumber Hardware 800 384
Endwall finish 250 144
Irrigation 100 32
Backup heater 225
Water Service 50 12
Weed Matt 200
Harvest container 200
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Construction CostConstruction Cost Materials Useful Life Annual cost
Site Preparation 60 15 4
Greenhouse layout 10 15 .66
Frame 5,000 15 333
Lumber Hardware 800 15 53
Endwall finish 250 10 25
Irrigation 100 10 10
Backup heater 225 5 45
Water Service 50 15 3
Weed Matt 200 5 40
Harvest container 200 5 40
Labor 1,244 15 83
Total 637
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Total Revenue
Most budgets
include a
revenue section
What yields
What price
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Retail Tomato Prices
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Total Revenue
LBS/Plant PriceTomato 12 $2.00
480 plants per high tunnel$11,520
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Enterprise Budgets
• Variable costs- vary with the yield
• Ex: Plants, fertilizer, fuel, repairs
• Fixed costs- costs you incur, whatever the level of production
• Ex: depreciation, taxes, insurance, interest and land
• Labor - Own vs. Hired
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Variable Cost
Plants 700
Fertilizer 175
Irrigation supplies 10
Stakes, string, clips 200
Heater fuel 75
Bees for pollination 100
Poly Cover (prorated 4 yrs) 200
Mis supplies 150
Sub total 1,610
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Labor Cost
Bed prep and fertilization 144
Transplanting, lay drip tape, weed matt 144
Site mowing and weeding 144
Pruning and trellising 576
Harvesting grading and packing 480
Clean up 120
Maintenance 96
Environmental management 360
Sub total 2,064
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Total Cost
Total Per LB
Annualized Construction Cost
637 .11
Fixed cost (interest, taxes, land)
1,085 .188
Variable Cost 1,610 .279
Labor 2,064 .358
Total Cost 5,396 .935
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Returns At Various Prices
$2.00/LB $1.50/LB $1.25/LB
Gross Returns $11,520 $8,640 $7,200
Variable Cost $3,674 $3,674 $3,674
Returns over Variable Cost
$7,846 $4,966 $3,526
Fixed Cost $1,085 $1,085 $1,085
Returns over Total Cost $6,761 $3,881 $2,441
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Breakeven Analysis
• Variable cost and labor $3,674
• $3,674/yields of 5,760 LBS
• Per acre price needed to cover variable costs = $0.63
• Total costs: $3,674+$1,722=$5,396/High Tunnel
• Price needed to cover total costs =$.94/LBS
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Breakeven Analysis
• What if yields were 10 pounds per plant• Breakeven price would be $1.12
• Yields of 14 pounds per plant• Breakeven price would be $0.80
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Pasture Pork Budget
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Setting up a Budget
• Decide on enterprise
• Production Model• Organic or convention
• Marketing model• Research prices
• Research input and output university budgets
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The Pork Budget
Questions to answer …
• Number of pigs or sows?
• Raise feeder or buy
• Production system? Organic, pasture Conventional
• Production assumption LBS of gain per day
• Price per LBS
• Mortality rate
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The Pork Budget
Questions to answer …
1. Housing Space, nest boxes needs
2. Pasture space needed, FencingEquipment Needs, Feeders and waters
3. Labor feeding, marketing?
4. Marketing costs, Where will you sell
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Total Revenue
Pasture Pork
revenue
What yields
What price
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Total Revenue
LBS/Animal Price
Whole pig 140 $5.00
Cuts 140 $8.18
29 Hogs Carcass 5,220 LBS
Dressed 3,567 LBS
Carcass $26,100
Cuts $29,178
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Variable Cost
Variable Costs Pasture Pork
Feeder pigs 75 2,250
Feed 222 6,494
Pasture Seed 35 175
Electricity 20 120
Repairs Fencing 1% of $3,066 31
Meds 10 292
Production Labor 69 1,035
Kill Fee 50 1,462
Processing Fee 150 4,387
Marketing Booth 25 375
Marketing labor 200 1,600
Total Variable Cost $18,471
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Breakeven Analysis
• Variable cost and labor $3,674• $3,674/yields of 5,760 LBS • Per acre price needed to cover variable
costs = $0.63• Total costs: $3,674+$1,722=$5,396/High
Tunnel• Price needed to cover total costs =$.94/LBS
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Fixed CostFixed Cost Materials Quantity Years 6 month
dep
Waterer 450 2 10 45
Hog Feeder 1,549 1 5 155
Hog Structure
1,500 1 10 75
Fence Charger
200 1 10 10
Water system
5,000 1 20 125
Fencing 3066 1 20 77
Acres in Rotation
150 1 20 75
Acres out of rotation
150 1 20 75
Total 11,915 636
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Total Cost
Total Per LB Dressed Per LB Carcass
Fixed Cost $636 .17 .12
Feed Cost $6,493 1.82 1.24
Variable Cost $4,153 1.16 .79
Marketing $7,825 1.49
Total Cost $19,107 3.15 $3.64
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Pasture Pork Budget
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Returns At Various Prices
$6.50/LB $7.5/LB $8.5/LB
Gross Returns $23,185 $26,752 $30,319
Variable Cost $18,471 $18,471 $18,471
Returns over Variable Cost
$4,714 $8,281 $11,848
Fixed Cost $636 $636 $636
Returns over Total Cost
$4,078 $7,645 $11,212
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Breakeven Analysis
▪ Breakeven Price
▪ Live weight $2.61
▪ Carcass Weight $3.63
▪ Dressed Weight $4.91
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Livestock Budgets Analysis
• What are expenses compared to total revenue?
• How many labor hours required?
• When is labor needed?
• What are machinery cost?
• What is breakeven price?
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Homework Description
• What to DO: In your business plan in AgPlan
Operations Sections
Products
Services
Production systems
Customer service
Develop your enterprise budgets
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Field Day
April 19, 2017
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Evaluation