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Junior and Senior level Ag Bus.

Colorado Agriscience CurriculumSection: Advanced Agribusiness

Unit: Agricultural Business Records

Lesson Title: Budgeting

Colorado Ag Education Standards and Competencies

AGB11/12.03 - The student will be able to formulate and analyze financial records and use the information for evaluation and planning.Develop partial budget, enterprise budget, whole farm budget.

Colorado Model Content Standard(s): English Standard 1: Students read and understand a variety of materials.

English Standard 4: Students apply thinking skills to their reading, writing, speaking, listening, and viewing

English Standard 5: Students read to locate, select, and make use of relevant information from a variety of media, reference, and technological sources.

Student Learning Objectives:

Upon completion of this lesson the student will be able to:

1. Understand and set goals.

2. List four different types of budgets.

3. Understand the difference between the budgets and how to use them.

4. Be able to setup a budget.

5. Learn and practice communication and basic life skills necessary for working with other people.

Time: 100 minutes 2 class periods possibly 3 or 4 class periods

Resource(s):http://www.management-resources.org/universal.php?c=12&a=71.

http://www.tdbanknorth.com/investment/financial_services/goal_planning.html.

Twelve Steps to Cash Flow Budgeting. Ag Decision Maker, File C3-15, November

Unit 1, Lesson 7: Budgeting 1

http://www.tdbanknorth.com/investment/financial_services/goal_planning.html

2004, www.extension.iastate.edu/agdm.

Cash Flow Budget. William Edwards, Ag Decision Maker, Version 1.0, Iowa State University University Extension.

c3-15cashflowbudget.xls, c3-15cashflowbudgetshort.xls, b1-21beefcowcalftbl14.xls all by William Edwards, Ag Decision Maker, Version 1.0. Iowa State University, University Extension.

Partial Budgeting. N.L. Dalsted, Colorado State University Cooperative Extension economist/farm management and professor, and P.H. Gutierrez, former Cooperative Extension economist/farm management and associate professor; agricultural and resource economics. 9/92. Reviewed 10/04.

Partial Budgeting: A Tool to Analyze Farm Business Changes. Ag Decision Maker, File C1-50, Robert Tigner, farm management field specialist. File Economics 1-8, Iowa State University University Extension.

c1-50partialbudgeting.xls. Don Hofstrand, Ag Decision Maker, Iowa State University University Extension.

Enterprise Budgeting. Agriculture and Business Management, Colorado State University Cooperative Extension, Rod Sharp.

Livestock Enterprise Budgets for Iowa – 2006, Ag Decision Maker, File B1-21, Iowa State University University Extension.

Enterprise Accounting. Gary G. Frank, October 15, 1997.

Farm Management 4 th Edition. Ronald D. Kay & William M. Edwards,The McGraw-hill Companies, Inc. 1999.

Instructions, Tools, Equipment, and Supplies:

Italicized words are instructions to the teacher, normal style text is suggested script.

Projector

Whiteboard

Microsoft Excel spreadsheet program

Enough copies of Goal Planning to hand out to students.

Students need to have a list of their goals if they have one, otherwise they will need note book paper to write them on.

Print outs of power point notes

Print outs of spreadsheets

Nerf balls


http://www.extension.iastate.edu/agdm

Interest Approach: The interest approach will come at the end of the lecture. The instructor will pair up the students. There are several approaches listed in the curriculum for pairing up the students. Each set of students will be required to build a budget. They will select their type of budget and the enterprise(s) included. The instructor should encourage the students to use their real world experiences when choosing their enterprise(s). The students are to work together to produce a budget they can both live with. This will belp the students realize that in life their spouse, partner or family member partner, may not have the same goals, and that they may want to budget their money differently and spend their net income differently.

Objective 1:Turn the sound on the computer

Have students take notes through out the slide show or print out the power point notes for students to follow along. There will be several E Moments available for the instructor to use.

I bet your wondering why we are talking about goal setting when the class is about budgeting. Financial budgeting is about making educated predictions for the future, using past and present information. We also need to know what our future goals are. So lets review quickly.

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 between parties involved by get everyone's view point and input.

There are roughly five steps required to set a goal

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.

Do you remember the acronym used to remember this?

Read the power point.

Now lets discuss budgets

Objective 2: Farm and ranch management has become more difficult and challenging as a result of rapidly changing production and economic conditions. A good manager needs to adopt a plan for the future, and one of the tools available are budgets.

Budgets help you to organize financially and physically.

You can compare costs and returns of alternative plans of action and enterprises for a farm or ranch business.


Then you should be able to choose a course of action that most nearly matches long-range goals which we have just talked about.

Remember-all budgets start with a planning session on paper.

Types of Budgeting

The cash flow budget deal with cash. They helps establish the cash needs of the business over a specified planning period, usually a year.

Further, the cash flow budget helps plan repayment of existing loan obligations.

They help determine repayment ability of new operating loans or longer-term loans

And establish the cash feasibility of a major capital purchase.

The enterprise budget is a physical and financial plan for a specific crop or livestock enterprise.

The enterprise budget estimates expenses and receipts for a specified period of time using a specified set of production practices.

The third budget is the partial budget. It helps the manager evaluate the economic effect of minor adjustments in some portion of the business.

Many aspects of business are fixed and have fixed costs, in the short run.

Partial budget can evaluate changes in resource uses that are not fixed or have variable costs.

The whole-farm or ranch budget is a detailed listing of resources of the entire business, along with a plan to use these resources to achieve long-term goals.

The whole-farm or ranch budget sets the direction the business will take and helps the manager achieve long-term goals

Family living expenditure budget. This budget can be considered an enterprise and also incorporated into the whole farm budget, or evaluated separate from the business.

Objective 3: All of the 4 budgets listed have similar processes. To help the student recognize these similarities, as you lecture, have the students make note of the similarities in each budget and when you repeat information already given in the lecture. You may also play a game. Divide the students into as many teams as you have nerf balls. Give each team a ball. When the instructor repeats a procedure in a new budget or information, the team is to throw the nerf ball at the instructor. The team must tell you why they threw the ball. The first team to through the ball, and is correct, earns a point. Points are deducted for unnecessary throws. Team that wins get 10 extra points on the next quiz.

A cash flow budgets is an estimate of all cash receipts and

all cash expenditures that are expected to occur during a certain time period.

Estimates can be made monthly, bimonthly, quarterly, or annually. They may include


both non-farm income and expenditures and farm income and expenditures.

Cash flow budgeting looks only at money movement, not at net income or profitability.

The Key words here are ESTIMATE and CASH. It is all about ESTIMATING your CASH income and expenses.

Remember, the more accurate your ESTIMATE, the more accurate will be your projection and decision-making.

The Key words here are ESTIMATE and CASH. It is all about ESTIMATING your CASH income and expenses.

Remember, the more accurate your ESTIMATE, the more accurate will be your projection and decision-making.

• As a management tool, cash flow budgets force you to think through your farming plans for the year. Again, we must look at our goals. Throw a ball or make a note for repeating the importance of goals and planning.

• They tests your farming plans: Where will your income come from and will it cover immediate expenses?

•They projects how much operating credit you will need and when.

• They projects when loans can be repaid and help plan for major purchases.

• They provide a guide to compare your actual cash flows to.

• They help you show your lender your farming plans and credit needs.

• They use past year financial and production records.

Instructor will want to start a list on the board. This is just a list. We will start the budget with slide 18. The power point will use the information found in the PDF file C3-15 Twelve Steps to Cash Flow Budgeting found at www.extension.iastate.edu/agdm.

It is better to make the example more personal by asking the class for input. The Excel spreadsheet c3-15cashflowbudget.xls walks through the planning session as well and is also found at www.extension.iastate.edu/agdm.

To get started we need to first outline our tentative plans for livestock and crop production for the year on paper.

Use your goal planning skills. Throw the ball or make a note for repeating planning.

Remember, this is not carved in stone. You are projecting and planning.

It is a good idea to build these budgets in a computerized spreadsheet as you will probably build more then one budget so you can look at the time period in several different ways.

Next we need to take inventory of livestock on hand and crops in current storage.


Use a recent financial balance sheet to determine this information. Throw the ball or make a note, repeat information about the need to use financial records.

Continue with example on the board. See slide 16.

See slide 16.

Estimate feed requirements for the livestock. You may need to do some research if this is a new enterprise. Enterprise budgets are available at many extension offices. Otherwise, use your farm past feed records. Throw the ball repeat information about using past records.

See slide 16

Record your beginning inventories. All ready done with slide 14.

Estimate your expected new crop production.

Finally, estimate the quantity of feed purchases needed, if any,

and the quantity available to sell.

Once your feed supply and feed requirements are estimated, adjust the livestock program to fit them.

Go over your example on the board and discuss what your livestock options look like at this point in the scenario.

This is slide 16 Double click on table and it will pop into Excel for editing.

Instructor can do one of the following:

1. Continue with the power point and then develop the cash flow in Excel or use the spreadsheets available with the curriculum.

2. Print out a spreadsheet available with the curriculum and have the students fill in as you go through the power point.

3. Print out the power point and hand out to the students and then build a cash flow in excel as the students follow along with the hand out.

4. Print out the power point and hand out to the students and then use one of the spreadsheets available with the curriculum

The power point will continue using the spreadsheet “Cash Flow Budget (short form) Example.”

There are 2 prepared spreadsheets that go along with the curriculum. And found at www.extension.iastate.edu/agdm. One is a called c3-15cashflowbudgetshort.xls. This is a simpler cash flow. The other is c3-15cashflowbudget.xls and is much more complicated, but makes some very good points. The instructor should review the spreadsheets and power point before hand and decide how much of the information to present.

Now, we are ready to create a cash flow budget using the criteria and goals we have just developed. This information should be on the board for everyone to view.



Fill out your name and total time period 6

First, what is our cash on hand? Type it in the beginning of the year in the first period (January). It will calculate a total in the “Total” column.

You can also specify a minimum cash balance to be carried over from month to month.

Next estimate livestock sales based on production and marketing plans, as shown in the top lines of

Example 3 from 12 STEPS TO CASH FLOW BUDGETING.pdf

Start with livestock on hand,

then add 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.

• Also include livestock product sales - milk or wool.

• Use your best estimate of prices based on outlook forecasts or marketing contracts and past records. Throw the ball repeat information about using past records.

• Your budget should reflect expected seasonal price patterns.

• Stay on the conservative side. If your plan will work at conservative prices, it will also work at better prices.

• Some producers prepare budgets at two or three price levels for the major products they sell. Throw the ball or make a note repeat information about building more then one spreadsheet or adjusting the spreadsheet.

Plan sales of non-feed crops and excess feed.

• Consider crops in inventory at the beginning of the year. Don’t forget crops to be harvested during the year.

Plan to carry over grain for feed for next year plus other crops normally sold in the following year.

• Plan timing of sales according to when you would normally market your items.

In this example, the farmer plans to sell old-crop soybeans in March and hold new-crop soybeans until after January 1 of next year.

• Follow the same guidelines for livestock sale for estimating crop prices.

Look at outlook forecasts,

consider seasonal price patterns, and

use conservative price estimates. Information File Crop Planning Prices (A1-10) provides information on planning prices which can be found at


www.extension.iastate.edu/agdm.

• Multiply quantities to sell by expected prices, and carry the crop and livestock totals to the budget form.

• After the initial cash flow budget is completed, you may want to revise your marketing plans to meet capital needs throughout the year. Throw a ball repeat information about goal and market planning.

Estimate income from other sources, including:

• government payments

• custom machine work income

• income from off-farm work, rental property, or other business activities

• interest, dividends, patronage refunds, etc.

Last year’s additional cash income listed on your income tax return is a useful guide. Throw a ball repeat information about using last years records.

We have completed the cash INCOME information.

Now it is time to look at expenses.

Project Crop Expenses and Other Farm andFamily Living Expenditures:

• Last year’s expenditures are a good guide. Throw the ball again.

Adjust for changes in price levels.

• If cropping plans will be different this year, detailed field-by-field production plans or field maps (see Example 5 in PDF) can be used to estimate expenses.

• Expenses that are determined by contract, agreement, or law can be estimated directly from contract terms, unless rates are expected to change.

These include property taxes, property and liability insurance premiums, and fixed cash rents.

• Adjust last year’s living expenses for changes in family circumstances and inflation.

If no family living expense records are available, Information File Family Living Expenditures (File C1-20) found at www.extension.iastate.edu/agdm can be used.

Remember to allow for possible purchases of personal vehicles, furniture, appliances, or major repairs. This is real-world stuff that students need to consider.

• A tax estimate made at the end of the year is helpful for projecting income tax and social security payments. Revise these when your actual tax returns have been filed.

• Expenses should be spaced through the year based on your best judgment.

Some will fall mainly during certain seasons, such as machine hire, part-time labor


and crop expenses.

Remember to place these expenses during the period of payment, not the period of use.

Some expenses will be spread through the year but will have definite seasonal peaks.

Fuel, machinery and equipment repair, and utilities are examples.

Other expenses may be spaced evenly through the year, such as

vehicle operating expenses, livestock health and supplies, and living expenses.

We are finished with expenses.

Estimate operating surplus. We are getting close to the bottom line.

• Add total projected cash inflows for the year and for each month, as shown in the sample budget in Example 3. Add the total inflows for each month to check that they equal the total projected inflow for the year.

• Add total projected cash outflows for the year and for each month.

Add the total outflows for each month to check that they equal the total projected outflow for the year.

• Subtract total cash outflows from total cash inflows to determine net operating surplus.

Add the operating surpluses for each period to check that they equal the total operating surplus for the year.

See example 4 in PDF

Consider capital purchases such as machinery, equipment, land, or additional breeding livestock.

Consider major machinery expenses such as a tractor overhaul. Also, construction or improvement of buildings.

Example 4 of PDF shows that the farmer is considering trading for a new combine for a cost of $50,000. This amount is entered under the “Capital Purchases” section. Show only the cash difference to be paid when a trade is involved.

You may want to complete the rest of the cash flow budget first to see if major capital expenditures will be feasible this year.

If you need to borrow money for the capital purchase, then include the that loan amount in the “New Term Loans” section.

Summarize debt repayment:

This information can be taken from your most recent financial statement. Include only those debts that you have already acquired at the beginning of the budgeting period, not new debt you may want to incure. Calculate the accrued interest that will be due


at the time the payment will be made.

Remember, the financial statement may show only interest accrued up to the date of the statement.

Throw the ball repeat information about using past records.

Finally we are at the bottom!

Calculate the cash flow surplus or deficit by adding the operating surplus for each month to New Term Loans, then subtracting Capital Purchases and Loan Payments.

If the estimated net cash flows for the entire year and for each month are all positive, you have a feasible cash flow plan.

If the net cash flows for some months are negative, some adjustments will need to be made.

Divide the class into two teams for a quick round of Jeopardy.

Give the winning team 10 point on their next quiz.

You survived cash flow budgets. Now, lets play Jeopardy and see what we remember.

Q: The first step in developing a budget.

A: What is GOAL PLANNING?

Q: Cash flow budgets help answer When do you need cash and ________ will you get the cash to cover expenses.

A: What is WHERE?

Q: A good manager uses these to project a cash flow budget.

A: What are PAST FINANCIAL RECORDS?

Q: A positive bottom line for a month and for the whole period.

A: What is A FEASABLE CASH FLOW?

Q: The second type of budget listed on slide 7.

A: What are ENTERPRISE BUDGETS?

Remind the kids to throw the ball or make a note when an enterprise budget is similar to a cash flow budget or information is repeated.

The instructor should bring up the Excel file b1-21beefcowcalftbl14.xlse and use it while explaining enterprise budgets. It can be adjusted to fit the instructor's needs.Or go to www.extension.iastate.edu/agdm/livestock. for more ag enterprise budget spreadsheets.

An enterprise is a single crop or livestock commodity that actually produces a marketable product.


Quick, give me some examples of enterprises:

Wheat, Swine, A No till verses tilled crop, Cow/Calf, Registered verses Commercial Herd.

An enterprise budget is a listing of all estimated income and expenses associated with a specific enterprise to provide an estimate of its profitability.

Enterprise budgets help determine if an enterprises should be expanded and identify those that should be cut back or eliminated.

They can be used in conjunction with partial budgets as we will see later.

They help to compare management practices.

The base unit for enterprise budgets is typically one acre for crops and one head for livestock.

Using common units permits an easy and fair comparison with different enterprises.

Enterprise budgets are generally for one year, however other time periods are permitted.

To identify the most profitable enterprises to be include in a whole farm budget. Enterprises might be expanded and those that should be cut back or eliminated. They are the basis for partial budgeting. Throw the ball or make a note, just talked about this.

They contain the data needed to compute the:

Cost of production.

The break-even price and/or production.

The Key word here is SINGLE: Single enterprise, single unit.

Enterprise budget incomes must be separated from other enterprises and/or the whole farm income.

Likewise, expenses must be sorted out from other enterprises and the farm.

Certain resources are used by more than one enterprise. This means a decision must be made regarding the allocation (by enterprise) of the costs associated with those resources by the manager.

1) Income/receipts/ revenue;

2) Variable or operating expenses. Enterprising deal mostly with variable costs.

3) Fixed expenses. Fixed costs most be allocated between enterprises. Throw the ball or make a note just went over this.

4) Summary

Include name, region, year and time period. Throw the ball, note the similarities


to the cash flow budget and the differences.

Lets start with the income/receipts or revenue.

The first step is a planning step just like with the cash flow budget. It is to estimate total production (output or yield) and expected output price. The estimated yields and prices should be what you expect under normal conditions. Be realistic! Does this sound familiar? Throw the ball or make a note same as cash flow

Lets start with the income/receipts or revenue.

The first step is a planning step just like with the cash flow budget. It is to estimate total production (output or yield) and expected output price. The estimated yields and prices should be what you expect under normal conditions. Be realistic! Does this sound familiar? Throw the ball or make a note same as cash flow

Relative long run prices should be used when doing a planning enterprise budget.

Actual prices should be used when doing a short run planning budget or a financial analysis enterprise budget.

The internal production cost of feed should not be used as the price of feed in a farm’s livestock enterprise budgets.

Revenues or Incomes are the results of the production process. Some revenues are shared, hidden, or used by other enterprises.

With the cash flow budget, we only dealt with cash transactions. Here we must look at Non-cash revenues.

Revenues or Incomes are the results of the production process. Some revenues are shared, hidden, or used by other enterprises.

With the cash flow budget, we only dealt with cash transactions. Here we must look at Non-cash revenues.

Now on to expenses.

Costs are divided into two groups. Each group has several different names for the same kind of cost:

Operating and Capital;

Variable and Fixed; or

Direct and Indirect.

The cost section usually has less variability and uncertainty than the income section.

If costs are divided into three parts, the third part is labor. Labor is under the operating costs in the two part system. Labor is sometimes treated separately because of the importance of this cost and/or to show a return to labor and management in addition to a return over operating costs. This is especially true if all the labor required for the enterprise budget is the owner’s.

These resources are often used by more than one enterprise. The allocation of costs is based on intent. Throw the ball or make a note as we have talked briefly about


allocating expenses

If the major use is by more than one enterprise, costs for that item should be allocated according to percentage use.

Example: planter for snap beans and corn.

If cost is mostly use by one enterprise and is used part time by another, only the operating costs for the time used should be charged to the secondary enterprise.

Example: A 150 H.P. tractor, with a cab, is used on occasion to haul manure in winter; charge only the operating costs to the livestock for time spent hauling manure, as the operator would not have purchased the tractor if no cropping was done.

The bottom line is figured by.

Income – OP Costs = Gross Margin.

Gross Margin – fixed costs = return to labor and management.

Return to labor and management – labor/management costs = Profit or loss.

Now would be a good time for an Einstein Moment. Pair up the students. Give each set of students a “genius name”. Ask the first set of students to listen and take notes about the 1st half of the summary. Then have those students teach what they learned to their partners. Repeat by having the 2nd set of students listen and take notes and teach their partner about the last part of the summary.

Two down and two more budgets to go. Lets CHANGE our pace and look at partial budgets.

Remind the kids to throw the ball or make a note when budget information is repeated.

As a business owner, you will have to make decisions about changes in your operation, whether it is something you are contemplating or something you have to do. Perhaps there has been a drought, or a death in the family, or you lost a lease or you added land. Maybe the market has turned, for example the corn market made major changes in 2006-2007.

The partial budget is a useful tool for farm managers when these situations arise.

Partial Budgets help farm owners/managers evaluate the financial effect of changes.

A partial budget only includes costs and incomes that will be changed.

It does not consider the resources in the business that are left unchanged. Some examples might be interest or depreciation on fixed assets.

Only the change under consideration is evaluated. Will it increase or decrease income in the farm business?

Partial budgets are based on the principle that small business changes have effects in one or more of the following areas.


1. Increase in income

2. Reduction or elimination of costs

3. Increase in costs

4. Reduction or elimination of income

The bottom line of the above effects will be the positive financial changes minus the negative financial changes. (Increased income + Reduced costs)-(Reduced income + Increased costs) = Net change in income

A positive net indicates that farm income will increase due to the change, while a negative net indicates the change will reduce farm income.

Show spread sheet file c1-50partialbudgetingwithexample.xls also found at www.extension.iastate.edu/agdm. The instructor may want to print off copies of the blank budget for students.

Partial Budget Components

The budget can be divided into four parts.

First it is divided into two columns:

The left hand column has items that increase income.

The right hand column has items that reduce income.

The two columns are divided in half:

The top half deals with income increase and decreases.

The bottom half reports expenses decreases and increases.

Then there is a:

a subtotal for each column.

And finally a grand total.

Added Income

If this is a new enterprise you may have to do some research to uncover a reasonable income estimate .

Remember to use realistic yields, product quality and prices. Throw the ball or make a note same as cash flow and enterprise budget.

Use average prices from the markets where production is most likely to be sold. Throw the ball or make a note same as enterprise budget.

Also use average quality unless the change under consideration is meant to improve crop or livestock quality.

Note: Income increases may come from expansion of an enterprise. If the expansion is small, current production quantities, quality and average prices are reasonable



approximations to use. But if the expansion is large, during the early production periods lower yields and quality may result because of start-up difficulties. Be conservative with your estimates and use your own financial figures if appropriate and when available.

Added Costs

List all increased expenses due to the change.

For a new enterprise these will probably be production costs.

This list may also include non-cash costs such as labor and depreciation.

For example, it might be good idea to include unpaid labor so that the operator is paid for his/her labor and management skills.

Throw the ball or make a note: Note similarities to enterprise budget mostly.

Reduced Costs

Obvious items would be crop or livestock expenses no longer incurred. You may even totally eliminate certain expenses.

Have kids give some examples: Seed, custom work, repairs, veterinary expense, interest expense and paid labor.

Inclusion of non-cash costs such as unpaid labor and depreciation would provide a full economic analysis.

Partial Budget Summary

Now let see what the bottom line says:

Total each of the two factors in column 1.

and write this result on the column 1 subtotal line.

Repeat the process for column 2.

Then take column 1 (added income + reduced cost) and subtract column 2 (increased costs +reduced income) to arrive at a projected net return from adoption of the change under consideration.

A negative number indicates the change as considered will reduce whole farm income.

A positive number indicates that the change will be profitable.

See Excel spreadsheet c1-50partialbudgetingwithexample.xls found with curriculum. Click on tab at bottom labeled Heifer Example. In advance, update income and expenses to more closely represent your region or do it in class to make the exercise more personal to the students.

Conclusion

Partial budgeting can be useful in helping to decide on alternative uses of resources


you have.

What’s nice about it is that it is a systematic approach that reduces the emotional response to change and can assist you in making educated decisions.

Remember this process can only estimate possible financial impacts, not assure them.

Management decisions and the luck of the draw can change the projections.

These may result in better or poorer than expected performance.

Repeating the analysis using different assumptions about key variables will give some idea about the degree of risk involved in making the proposed change.

Have the students form teams of three and present a news television show using the terms and information presented in cash flow, enterprise and partial budgets.

To group the students, have the students find two other people who were born in the same quarter of the year as they were. Everyone born in Jan-March, April-June, July-September and October-December. You may have to adjust the groups to make the numbers come out even.

One more budget to go

Instructor may want to revisit c3-15cashflowbudget.xls included with the curriculum. This is an excellent fallible whole farm budget that shows the steps starting with the planning stage through developing enterprise budgets to the final whole farm budget. The instructor may also use their own budgets developed in Excel.

If you have done a good job producing your enterprise budgets and cash flow, your whole farm budget should be easy to assemble.

Remind students to throw the ball or make a note when a concept is repeated.

The whole farm budget is the last step in the budget process.

It will help estimate cash inflow, outflow and liquidity for the operation.

This processes aids in comparing alternative plans for profitability and liquidity of the farm, and evaluates the effects of changing other parts of the farm plan on the entire operation.

It helps estimate the need and availability of resources like land, capital, labor, feed needed for livestock and even irrigation water.

A whole farm budget is a great resource to present to your banker, landlord, a partner, etc.

Most of your work should already be done if you have done a good job with your other budgets. As with the cash flow budget and enterprise budget, you need to look at your farm plans so you know quality and price of items included in you whole farm budget. See slide 16 for a planning outline.

As with all the other budgets, we start with estimating our income and variable costs. These figures come from our enterprise budgets.


Then we estimate our fixed costs. These may or may not come from the enterprise budgets as these costs are hard to calculate in an enterprise. They may also come from your income statement. This gives us our Net Farm Income.

Once again ask for examples of income, variable and fixed costs.

The instructor should be pelted with balls as this is repeat material from enterprise budget.

For our whole farm budget we calculated by multiplying the income per unit by the number of units to be produced. Remember, for the enterprise budget we calculated this on a unit bases, now we are figuring our total enterprise income. Use all enterprises currently part of the farm and any enterprises you are looking at incorporating into the farm.

Other income from custom work, off farm wages, tax refunds should be added in here as well.

Calculated by multiplying the variable costs per unit by the number of units to be produced. Once again, we are not estimating on a per unit bases, but on the total amount of variable costs our enterprises will generate. Do this for all enterprises: The ones you are currently involved in and any new enterprises.

Remember these are costs not already included in an enterprise, for example a loan for feeder calves would be included in the feeder calf enterprise budget and should not be duplicated here. Throw the ball repeat information about fixed costs.

Add the variable and fixed expenses together to get total expenses

Subtract the total expenses from the total income.

Now you can analyses your whole operation and decide which enterprises to include, remove or adjust enterprise to better utilize capital assets such as land, equipment and water.

For long-range budgets use long-term averages for prices and costs and use long-term averages for yields and production levels.

Use your farm’s past records or for new enterprises, conservative estimates from research from you area usually available through the extension office.

Over time, the whole farm budget may drop below the profit line in certain years. This is to be expected when major capital purchase are incurred or at the beginning of a new enterprise. Long-range planning will help prepare the manager for these years. Also, many events like the weather, government laws and market conditions can not be predicted, so the budget needs to be revisited and adjusted frequently. Actual and predicted budgets will not always a line for these reasons.

Objective 4 & 5As a final project. Have the students pair up as instructed in the interest approach (see below for ways to pair them up). Each set of students must build a budget. They must include enterprises from each other’s operations and collaborate on a set of goals. They need to include family living expenses. Any excess cash available after all farm capital purchase, new loans and living expense have been allocated must be spent on “toys”, travel, entertainment or charities, etc. They need to be specific about where this money is going. The pair must agree how to spend their excess cash. If there is no extra cash, allocate $10,000 to the students just for this


purpose. It is important that the students learn to communicate and deal with conflicts that arise in the real world when dealing with people concerning money. They need to learn to be flexible as well as, learn the importance of helping others by supporting charities.

Students can start project on paper, but it is recommended they use Excel.

Step 1: List goals using S.M.A.R.T. technique.

Step 2: List Incomes

Step 3: List variable costs.

Step 4: List fixed costs.

Step 5: Estimate incomes and costs using farm planning techniques.

Step 6: Project over a time period.

Step 7: Calculate gross income,

Step 8: Calculate return to labor.

Step 9: Calculate profit/loss.

Step 10: Allocate extra funds for entertainment and charities.

PAIRING UP IDEAS

1. Find a student who is wearing the same color socks as you.

2. Find a student who’s favorite food is the same as you.

3. Find a student who has eaten out at the same restaurants as you recently.

4. Find a student who drives the same make and model of car.

5. Choose a partner.

6. I will choose a partner for you.

7. Choose a partner of the opposite sex.

You get the idea. You may want to have more then two to a group.

Objective 5: [ Click here and enter information. ]

Review/Summary: Have the students draw a map of all the budgets covered. Have them highlight the main points and parts of each budget, including goal planning, and name these stops on their map. Have them use different color markers, pencils or crayons to draw the map.

Application--Extended Classroom Activity:

See objective 4 & 5


Application--FFA Activity:

Participate in the Farm Management CDE

Application--SAE Activity:

Evaluation: Students should use information from their own record books to complete the Excel worksheets that are attached.

Evaluation Answer Key: Answers will vary

Other:


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