This presentation was produced and is copyrighted by Stewart- Peterson®, Inc. 2003-2005. Permission is granted for use by active AgEdNet.com® subscribers. All other use is prohibited.

STEWART-PETERSON and AGEDNET.COM are registered trademarks of Stewart-Peterson, Inc.

AB121 Introductionto Budgeting

Business Library

What is a budget?

• Often used to mean "placing a limit" on what one can spend.

• In general, a budget is "an estimate of expected costs and returns for a specified time period into the future, usually a year."

• In business, a budget isa tool used in planningand making decisionsfor the future.

Four common budgets used in managing farms and businesses:

• Operating budget: covers all expected income and expenses for a family, a farm or a business for one year.

• Enterprise budget: covers only income and costs associated with a single enterprise (corn crop or hog enterprise).

• Partial budget: covers only the costs and income that will change as a result of the decision that is being considered.

• Cash flow budget: an estimate of cash to be received vs. cash to be used to pay bills, make investments and cover other needs.

Why budget for your farm or business?

• For planning purposes

• To help you make decisions

• To provide benchmarks to keep your plan on track

Enterprise budgets and operating budget:

Enterprise budgets• Costs and returns for

a specific crop or livestock on a per acre or per unit basis

• Used to determine operating budget

Operating budget• Income and expenses

for an entire farm or business

• Includes enterprise budgets and other income and expenses

Three major sections to a budget:

1. Revenue from all sources

2. Expensesa. Variable – linked to production

b. Fixed – occur regardless of production

3. Income – the sale of goods less the costs

Examples of variable and fixed expenses:

Variable expenses• Seed• Fuel• Chemicals• Feed• Veterinary expenses

Fixed expenses• Land taxes• Depreciation• Interest on land or

equipment

USDA photo by Tim McCabe USDA photo by unknown photographer

Conservative budgets are usually best:

• Objectives should be based on estimates the operator has good reason to believe can be achieved.

• Budgeting revenue too highor expenses too low willresult in failure.

• It is better to exceedobjectives than to fall short.

This presentation was produced and is copyrighted by Stewart- Peterson®, Inc. 2003-2005. Permission is granted for use by active AgEdNet.com® subscribers. All other use is prohibited.

STEWART-PETERSON and AGEDNET.COM are registered trademarks of Stewart-Peterson, Inc.

www.agednet.com

800-236-7862