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ADVANCE AGRIBUSINESS

ADVANCE AGRIBUSINESS. FARM RANCH BUSINESS MANAGEMENT. SETTING GOALS. Why do we set goals? 1. To plan for the future. 2. To keep from making emotional decisions by having a plan, in writing. 3. To enhance communication by getting all parties involved view points and inputs.

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ADVANCE AGRIBUSINESS

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  1. ADVANCE AGRIBUSINESS FARM RANCH BUSINESS MANAGEMENT

  2. SETTING GOALS • Why do we set goals? • 1. To plan for the future. • 2. To keep from making emotional decisions by having a plan, in writing. • 3. To enhance communication by getting all parties involved view points and inputs.

  3. 5 GOAL SETTING STEPS • 1. Be specific. • 2. Set a time line. • 3. Be realistic. • 4. Write it down. • 5. Know what is involved to obtain the goal and determine how important it is to you.

  4. SPECIFIC MEASURABLE ATTAINABLE REALISTIC TIMELY S.M.A.R.T. • S • M • A • R • T

  5. GIVE YOUR SELVES A HAND

  6. DEFINING BUDGETS • Budgets are planning tools. • Budgets help you compare income and expenses for different enterprises and alternative plans of actions. • Budgets help you form your course of action.

  7. Types of Budgeting • Cash flow budget. • Enterprise budget. • Partial budget. • Whole-farm or ranch plan and budget. • Family living expenditure budget. • All budgeting starts with making a plan

  8. CASH FLOW BUDGET

  9. What is a Cash Flow Budget? • Estimate of all cash receipts. • Estimate of all cash expenditures. • Cash expense occurring in a certain time period. • Monthly • Bimonthly • Quarterly • Yearly • Records only money movement.

  10. Estimate and Cash

  11. Management Tool • Goal planning. • Tests your farm plan. • Projects operating credit needs and time frame. • Loan repayment schedule. • Compare to actual cash flow. • Communicate you farming plans to others. • Use past financial and production records.

  12. Cash Flow BudgetMaking a Plan • Outline Example Production plans for the year. Crop production plans 500 acres of corn 400 acres of soybeans 50 acres of hay 80 acres of pasture Livestock production plans 224 litters, farrow to finish swine

  13. Take Inventory • Livestock on hand. • Crops in storage now. • Use a recent financial balance sheet

  14. Estimate Feed Requirements • Use county enterprise budgets • Use your past feed records.

  15. Estimate Feed Available • Beginning Inventories • Estimate the quantity of feed purchases needed • Quantity available to sell. • Adjust the livestock program to fit

  16. Actual Cash Flow BudgetIncome or Cash Inflow • Cash on hand. • Livestock sales. • Livestock on hand. • Livestock to be produced during the year. • Exclude animals to be carried over to next year or held back for breeding stock. • Include sales of breeding stock that will be culled. • Livestock product sales. • milk or wool.

  17. Things to Remember • Reflect expected seasonal price patterns. • Stay on the conservative side. • Prepare budgets at two or three price levels.

  18. Plan Sales of Non-feed Crops and Excess Feed • Consider crops in inventory. • Beginning of the year. • Crops to be harvested. • Carry over grain for feed for next year. • Other crops normally sold in the following year. • Plan timing of sales. • Estimating Crop Prices. • Outlook forecasts. • Seasonal price patterns. • Conservative price estimates. • revise your marketing plans to meet capital needs.

  19. Estimate Income from Other Sources • Government payments. • Custom machine work income. • Income from off-farm work, rental property, or other business activities. • Interest, dividends, patronage refunds, etc.

  20. Project Crop Expenses and Other Farm andFamily Living Expenditures • Use last year’s expenditures. • Detailed field-by-field production plans or field maps. • Contract agreements. • property taxes, property. • Liability insurance premiums. • Fixed cash rents. • Last year’s living expenses for changes in. • Family circumstances. • Inflation. • Tax estimate. • Expenses should be spaced through the year. • Place expenses during period of payment, not use. • Use your best judgment. • Remember seasonal peaks.

  21. Estimate Operating Surplus. • Add total projected cash inflows for the year and for each month. • Add total projected cash outflows for the year and for each month. • Subtract total cash outflows from total cash inflows to determine net operating surplus.

  22. Consider Capital Purchases • Machinery & equipment. • Land. • Additional breeding livestock. • Major machinery expenses. • Construction or improvement of buildings.

  23. Summarize Debt Repayment • Recent financial statement. • Debts that you have already acquired. • Calculate the interest.

  24. Calculate the Cash Flow Surplus or Deficit • Add the operating surplus for each month to New Term Loans • Subtracting capital purchases and loan payments • Positive Estimates • Negative Estimates

  25. YOU SURVIVED !!!!!!!

  26. Enterprise Budgets

  27. What is an Ag Enterprise?

  28. What is an Enterprise Budget? • Enterprise budgets record: • Income or revenue. • Expenses. • Returns (profits or losses). • For a single crop or livestock production center. • Enterprise budgets help determine. • Should an enterprise be expanded or eliminated. • They help to compare management practices. • Enterprise budgets are typically one unit measurements. • One acre for crops. • One head for livestock. • This permits easy comparisons between different enterprises. • Enterprise budgets are usually for one year.

  29. Enterprise BudgetsA Management Tool • Types of Enterprise Budgets. • Planning Enterprise Budget. • Financial Analysis Enterprise Budget. • Identify the most profitable enterprises. • Provide a basis for partial budgeting. • They contain data needed to compute. • Cost of production. • Break-even analyses.

  30. SINGLE: • Single enterprise. • single unit.

  31. Incomes must be kept separately. • Expenses must be kept separately. • Record transfers from one enterprise to another with in the farm. • Allocation of costs. • Electricity. • Water. • Certain feeds.

  32. Format of an Enterprise Budget • Four Parts. • Income/receipts/revenue. • Variable or operating expenses. • Fixed expenses. • A bottom line or summary

  33. Income/Receipts/Revenue • The name of the revenue. • Source. • Quantity. • Unit. • Price per unit.

  34. Additional Considerations • Pricing

  35. Income Definitions • Cash payments for production sold (crops, livestock, or livestock production). • Government program payments. • Cash insurance payment for damages. • Non-cash revenues for feed fed to other internal livestock enterprises. • Non-cash revenues for livestock transferred to other internal livestock enterprises. • Non-cash revenues for residue.

  36. Costs • Operating Cost, Variable Costs, Direct Costs. • Labor Costs. • Capital Costs, Fixed Costs, Indirect Costs. • Labor Costs.

  37. Allocating Costs • Based on intent. • Major use by more then one enterprise. • Major use by one enterprise. • Unpaid labor & management (operator's Salary).

  38. Cost and Returns Summary • Returns Over Operating Costs or Gross Margin. • Return to Labor and Management. • Profit/Loss. • Income - OP Costs = GM • GM – Fixed Costs = Return to Labor • Return to Labor – Labor Costs = Profit/Loss

  39. Summary • Enterprise budgets can be used as a planning tool or an analysis tool. • They can help the farm manager better understand the pros and cons of a component of their business. • Producing sound enterprise budgets requires: • Detailed understanding of an enterprise’s production practices • Generating income. • Incurring variable costs. • Fixed costs. • An understanding of the basic budgeting framework. • Sound enterprise budgets provide more information than just the enterprise’s profitability. • They identify the most profitable enterprises on a farm. • They provide the basis for partial budgeting and cost of production calculations. • They can be used to produce break-even price and/or production analysis.

  40. Two down Two to go

  41. PARTIAL BUDGETINGA TOOL TO ANALYZE FARM BUSINESS CHANGES

  42. What is a Partial Budget? • Evaluates the financial effect of incremental changes. • Includes resources that will be changed. • Does not consider the resources in the business that are left unchanged.

  43. Partial Budgeting Principles • Increase in income. • Reduction or elimination of costs. • Increase in costs. • Reduction or elimination of income.

  44. Partial Budget Components • The left hand column has items that increase income. • right hand column has items that reduce income. • The top half deals with income increase and decreases. • The bottom half reports expenses decreases and increases. • a subtotal for each column. • a grand total.

  45. Added Income • Use realistic yields, product quality and prices. • Use average prices. • Use average quality.

  46. Added Costs • Increased expenses. • Costs of production. • Non-cash costs. • Labor. • Depreciation.

  47. Reduced Costs • Crop or livestock expenses no longer incurred. • Non-cash costs.

  48. Partial Budget Summary • Total each of the two factors in column 1. • Repeat the process for column 2. • Then take column 1 (added income/reduced cost) and subtract column 2. • A positive number indicates a profit.

  49. Example

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