Farm and ranch planning can often be stressful. One way to help reduce this stress is to use an enterprise budget, said Henry English, Ph.D, director of the Small Farm Program at the University of Arkansas at Pine Bluff.
An enterprise budget is a key component to a business plan that can be used to assist a producer in determining the economic feasibility of a proposed venture, according to a news release.
An enterprise budget estimates the full economic costs, revenue (income), and profit associated with the production of an acre of land for crops or an individual animal unit for livestock, English said.
The different enterprise budgets (soybeans, southern peas, corn, watermelons, cow-calf, or goats) allow producers to examine the cost and profit potential of the different crops or livestock enterprises and then select the enterprise that is most suitable or profitable for his or her operation.
“An enterprise budget can help producers evaluate different options before committing resources, estimate the size (acres) of farm needed to earn a specific return and uncover cost that they may not have considered,” he said. “By using enterprise budgets, producers make decisions based on reality as opposed to emotions. It is a powerful risk management tool for production.”
The basic components of an enterprise budget are as follows:
Revenue – quantity produced time market price or for Southern Peas (SP) 150 bushels per acre X $20 per bushel = $3,000 per acre.
Operation or Variable Cost – expenses incurred when the enterprise is produced, these expenses change as units change, examples: seed fertilizer, chemical, fuel, etc. (operating cost SP - $1,460.)
Ownership or Fixed Cost – expenses that will be incurred regardless of whether the enterprise is produced. Examples include depreciation on building, machinery and equipment as well as taxes, insurance and interest. (Fixed cost SP - $215.)
Profit – or loss is what remains after covering all expense (operating and fixed). (Profit = revenue ($3,000) - total expense ($1,675) = $1,325.)
Enterprise budgets for Arkansas field crops, specialty crops and livestock are available at the Arkansas Cooperative Extension Service website at https://www.uaex.edu/farm-ranch/economics-marketing/farm-planning/budgets/default.aspx.
After selecting enterprise budgets for an operation, the producer should adjust them to fit their specific operation, English said. Producers needing assistance or more information can contact the UAPB Small Farm Program at 870-575-7237.
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