Session 4: Developing Enterprise Budgets

Transcription

1 Session 4: Developing Enterprise Budgets

2 Warm-up Smith 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

3 Review Homework How did you decide on Capital Assets you need Equipment Buildings Irrigation Fencing Were there any surprises?

4 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

5 Review Field Day How did the farm we saw decide on equipment? Did they have irrigation equipment? What facilities, building, machinery did farms have?

6 Review Homework How did you decide on Capital Assets you need Equipment Buildings Irrigation Fencing Were there any surprises?

7 Pay Back Cow-Calf 10 cows Stockers 40 calves Fence 2,565 2,565 Total Capital Cost /Annual Returns above Costs Handling Equipment 5,000 5,000 One time pasture and waterer 1,000 1,000 Breeding animals 20,000 Total Start up 28,565 8,565 Annual returns per animal 200/cow 75/calf Annual return above prod. costs 2,000 3,000 Yrs Payback to all costs 14.3 yrs 2.9 yrs Yrs Payback to Equipment Costs 4.3 yrs 2.9 yrs

8 Session 4: Enterprise Budget

9 Today s Objectives 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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11 Developing the Cost of Production Numbers Insert name & photo of guest speaker here

12 Smith s Farm Goal We would like our farm to make $20,000 net profit in Have $30,000 for start-up costs.

13 Smith s Farm Goal We would like our farm to make $20,000 net profit in 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?

14 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

15 Two Examples of Commercially Available Individual Crop Cost Methods.

16 Budgeting A way of estimating profit Organized into Income Variable costs Fixed costs Estimates based on production, technology, and size

17 Crops Budgets* *From: Organic Farmers Business Handbook Richard Wiswall

18 Units of Production SALES VOLUME X SALES PRICE = GROSS INCOME

19 Sales Price = $ per Unit of Quantity Units of Production $ per pound average $ per cwt. Average $ per animal average SALES VOLUME X SALES PRICE = GROSS INCOME

20 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

21 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 $3.00 /pint = $1,500 or 200 pints u-pick $2.00 =$ pints prepack 2.75 =$ pints sold at farmers market $600 Total Revenue $1,275

22 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

23 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

24 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

25 Fixed Costs Important for making decisions, are we making a profit yet? Important for items that have a useful life of > 1 year Depreciation is the loss of value or obsolescence of an asset over time (not related to taxes) Focus on machinery, equipment, & buildings

26 Fixed Costs Fixed Cost Years Total Per Cow Pasture Pasture Equipment 1, Water Infrast. 5, Fencing 23, , Tractor 12, * 12 Truck 15, Equipment 12, Corral 10, Total Fixed Cost $3,794 $151

27 Tractor Costs Tractor model JD 2240 Ford 4000 Cub Original cost/useful life 7000/ / /25 Annual cost, w/o interest Average annual repairs Annual fuel $3/gallon Total annual cost Hours used annually Tractor cost/hour Tractor with driver: $/hour

28 Farmers Market Costs Farmers Market Costs Cost Calculate for ONE market Labor: load truck(s) hr (2 hr each) Labor: travel, set up hr (2 people) Labor: market vending hr (2 people) Labor: pack, travel, unpack, tally sales hrs (2 people) Vehicle(s) cost at.40/mile 8.00 Rental fees Amortized FM equipment 7.67 Subtotal, one market: # of markets 6 Total costs for # markets Crop sales % x total 20 miles round trip per market scales $1500, umbrellas $400, tables $200, signs $200 $2300/15-year useful life/20 markets per season = $7.67 per market

29 Ten Minute Break

30 In-Class Exercise Today s in-class exercise will help you apply each new concept as we learn it. You will practice today s ideas with a budget for a poultry operation. We will work on the assignment in stages today as you learn new concepts. You can use today s in-class exercise as an example when you do the homework. The homework asks you to apply today s concepts to your own enterprise.

31 In-Class Example Gross Income Complete the Gross Income section for the poultry enterprise (orange cells): Gross Income Unit Quantity Price Total Eggs DZ $0.00 Hens Each $0.00 Total $0.00

32 In-Class Example Chicks vs Pullets Complete the Chicks vs. Pullets worksheet to help define your enterprise: Chicks Pullets Day old chick 2 15 Feed for 6 months Mortality 5% Feeder and Waters

33 In-Class Exercise Variable Costs Complete the variable costs for the poultry enterprise (red cells): Unit Quantity Price Total Variable Cost Pullets Hd 70 $0.00 Feed Layer Feed 50 LB Bag $15.00 $0.00 Supplies $ Electricity $ Repairs $ Medication and Diagnostic $ Marketing Egg Cartons each $0.25 $0.00 Slaughter fee each $5.00 $0.00 Labor 0.2 $10.00 $0.00 Total Variable Cost $817.00

34 In-Class Exercise Fixed Costs What are the fixed costs for the poultry operation? Complete the blue cells in your spreadsheet: Unit Quantity Price Total Fixed Costs Years Building 10 0 Equipment 5 0 Fencing Total Fixed Costs 0.00

35 Farmers Market Costs Farmers Market Costs Cost Calculate for ONE market Labor: load truck(s) hr (2 hr each) Labor: travel, set up hr (2 people) Labor: market vending hr (2 people) Labor: pack, travel, unpack, tally sales hrs (2 people) Vehicle(s) cost at.40/mile miles round trip per market Rental fees 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: # of markets 6 Total costs for # markets Crop sales % x total market costs 73.94

36 Ten Minute Break

37 High Tunnel Budgets

38 Construction Cost

39 Construction Cost 96 by 30 Companies High Tunnel 7,972 6,060 8,860 Other items Irrigation Plastic Cover Labor Site Preparation Backup heater Water Service Weed Matt Delivery

40 Construction Cost Construction Cost Materials Labor Site Preparation Greenhouse layout Frame 5, Lumber Hardware Endwall finish Irrigation Backup heater 225 Water Service Weed Matt 200 Harvest container 200

41 Construction Cost Construction Cost Materials Useful Life Annual cost Site Preparation Greenhouse layout Frame 5, Lumber Hardware Endwall finish Irrigation Backup heater Water Service Weed Matt Harvest container Labor 1, Total 637

42 Total Revenue Most budgets include a revenue section What yields What price

43 Retail Tomato Prices

44 Total Revenue LBS/Plant Price Tomato 12 $ plants per high tunnel $11,520

45 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

46 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

47 Total Cost Total Per LB Annualized Construction Cost Fixed cost (interest, taxes, land) , Variable Cost 1, Labor 2, Total Cost 5,

48 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

49 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

50 Pasture Pork Budget

51 Setting up a Budget Decide on enterprise Production Model Organic or convention Marketing model Research prices Research input and output university budgets

52 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

53 The Pork Budget Questions to answer 1. Housing Space, nest boxes needs 2. Pasture space needed, Fencing Equipment Needs, Feeders and waters 3. Labor feeding, marketing? 4. Marketing costs, Where will you sell

54 Wrap-up 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?

55 Homework Complete the take-home assignment on variable cost, yield, price, and receipts and their function in the enterprise budget. Complete the Operations Section (products, services, production systems, and customer service) in Ag Plan.

56 Evaluation Add your evaluation link HERE

57 Field Day Take your worksheet for the field day with you to ensure you get the most from the experience!