Enterprise Budgets

Edward B. Rayburn, Ph.D., Extension Forage Agronomist

What is an enterprise budget?

An enterprise budget is a written GOAL statement for a crop or livestock production activity; listing the production goal, management activities, resource requirements, and economic returns.

An enterprise budget contains the following elements or sections:

1. production goal,
2. expected market price and gross receipts,
3. planned management activities with required resource inputs and costs, and
4. estimated net return and break even price (BEP) for the goal production.

With this information the manager can use the enterprise budget as a plan of operation before production to address the following questions:

1. what is a reasonable production goal for the local environment,
2. what management activities and resources are required to obtain this goal,
3. what factors can prevent achieving this goal,
4. what will be the resulting cost of production,
5. what is the risk of not achieving the estimate enterprise gross receipts,
6. what is the estimated net return and break even price (BEP) needed to cover all costs including a reasonable return to labor and management, and
7. how does this enterprise and management option compare to others in net return and risk?

The manager can also use the enterprise budget as a reference point after marketing. Here it provides the manager;

1. a closeout report of production activities and net return and
2. a variance report of what really happened versus what was planned, so an improved plan can be developed for next year.

How to budget.

Budgets are organized thoughts and simple arithmetic. Many farmers budget in their head. However the best budgets are written down so that they can be reviewed to ensure that all resource requirements and costs are covered and so that they can be studied after production and marketing to increase learning from the experience.

Most of the information needed for a good budget is available locally from past experience, the farm plan or county soil survey, soil tests, and phone calls to the county agent for production recommendations and to agricultural supply stores for purchased input costs.

Budgets from different Enterprises work together.

One use of enterprise budgets is to question "how can I do this better" or "how can I do that at a lower cost". In some cases it means looking at another budget, from an enterprise that provides an input for the one in question. The cow-calf enterprise is a good example. When trying to reduce production costs, the cow-calf budget shows that the major cost is for hay and pasture. We see real quick that if we feed more pasture and less hay we will reduce production costs. However, to evaluate how to reduce the cost of producing a ton of hay we need to go to the hay budget to evaluate alternative strategies.

Frequently "standard budgets" are published by universities or popular farming publications. However, the only budget that really matters is the one that applies to your farm. There are a number of example budgets available on the Forage-Livestock System. These are to be used only as examples. When applying these budgets local production goals, management activities, and prices must be substituted for the numbers provided. These budgets are in the "*.wk1" spreadsheet format which in general can be read by most spreadsheet software. The following table lists the purpose of the spreadsheet and its file name.

Forage-livestock system enterprise budgets and animal performance spreadsheets.

Purpose of spreadsheet	File name
Enterprise budgets	save to disk & view with spread sheet program
prorate overhead costs to crops and livestock	overhead.wk1
estimate net return for a cow calf herd	cowcalf.wk1
estimate the cost for producing replacement heifers	heifer.wk1
estimate the break even price for stocker cattle	stocker.wk1
estimate the cost of pasture	pasture.wk1
estimate the cost of hay production	hay.wk1
estimate the cost for annual grain or forage crops	ann_crop. wk1
estimate the cost of fencing	fence.wk1
Ration balancing and animal performance models
evaluate beef cattle nutrition and management in feed lots	ccsii.wk1
evaluate beef cattle nutrition and management under MiG documentation for ccsii.wk1	ccsii-ig.wk1 ccsii.doc, ccsii-ig.htm, ccsii-ug.txt
evaluate dairy cattle nutrition and management under MiG documentation for dprb.wk1	dprb.wk1 dprb.doc, dprb_wpd.doc, dprb.txt

 

The time put into working with enterprise budgets will pay management dividends. By using budgets to compare alternatives within and between enterprises, managers improve their production and management skills. Enterprise budgets aid in cash flow planning, in controlling production costs, and in determining the break even price (BEP) for a commodity and assessing if it is reasonable possible to make a profit from an enterprise.

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