Budgeting can help maximize profits

Budget to Maximize Profits

By Landon Snook For each enterprise, producers should develop a separate budget The time we have been anticipating is finally here. It’s a new year and point is important to determine which enterprise is most profitable. You will want to 2020 is in our rearview. I think we can all agree 2020 is one for the record books. Which keep this updated as things change with your operation, whether that is new machinery brings up another topic on everyone’s mind for 2021. What will the year hold and how purchases or input cost modifications. do I plan accordingly? Finally, you will want to determine net receipts, also known as your profit. The net

You probably begin each year by looking at your previous records, budgets and plans. receipts are calculated by subtracting total costs from total income. This year, pay extra attention to past trends and consider what-if scenarios. It may also You may ask why put all this effort into budgeting for each enterprise? The answer is be useful to include enterprise budgeting. simple. To maximize profits. When you know how to allocate your resources and know

An enterprise budget is an estimate of costs and returns to produce a product or enterprise. the estimated profitability from each enterprise, you are in control and can make better

If you raise cattle and grow crops, then you develop an enterprise budget for each. For decisions. The key is that an enterprise budget allows you to identify profitability as it example, an enterprise would be an acre of corn, an acre of wheat or a cow producing relates to each product versus a whole farm budget. It provides more finite detail. calves. Each enterprise requires different resources. This type of budget will help you For example, you raise livestock and grow crops. You want to consider expansion. Your enevaluate your options to ensure you are using resources in the best possible way when terprise budget will show which product is most profitable and help you decide if expansion making farm management decisions. is the right thing to do at the time. You will also know how to allocate resources to the most

An enterprise budget should include all estimated income and expenses for each enter- profitable piece of your business. A bonus is that your lender will also be able to see the detail prise. This includes all sources of income, variable or operating costs, and fixed costs in per enterprise helping them determine the profitability and risk involved with expansion. order to estimate profitability. Remember, enterprise budgets are estimates. Therefore, you want to capture the best

Begin by estimating your income or total receipts. information available. Historical data can help you form accurate estimates. Reviewing

For example, an acre of corn that yields 150 bushels at $4.80 would be $720 total your previous years’ plans and doing an internet search are helpful. You may also consider receipts. Next, calculate your variable costs. These could include fuel, seed, fertilizer, reaching out to your local Extension. chemical, labor and interest. Then evaluate your fixed costs, which could include taxes, If anything, 2020 taught us that we should be prepared for the unimaginable. Enterprise interest and insurance. Depreciation is also a fixed cost. budgets may not solve pandemics and supply chain issues, but they can help you adjust

You will want to consider depreciation with machinery, grain bins and other facilities. resources and make decisions when the unexpected happens. Make 2021 your best year yet. Your break-even point is when total receipts equal total costs. Knowing your break-even Landon Snook is the Farm Credit Services Financial Vice Presdient, Joplin 16 Ozarks Farm & Neighbor • www.ozarksfn.com FEBRUARY 1, 2021