Enterprise Budgets & Breakeven Analysis

1. Enterprise Budgets & Breakeven Analysis Dr. Alex White Ag. & Applied Economics axwhite@vt.edu

2. Enterprise Budgets • List of all • Revenues • Variable (operating) expenses • Fixed (ownership) expenses • For a specific part of an operation • Corn • Dairy cows • Milking herd, replacements, etc.

3. How To Construct • VCE budgets = good starting point • Use your records to customize • Be consistent with your prices • Short Run – use actual or expected prices • Long Run – use long run average prices • Inputs needed & production methods

4. Uses of Enterprise Budgets • Determine operating needs • Inputs, operating loan • Profitability of production • Identify methods of improving profits • Breakeven analysis • Minimum price, yield, etc. • Short run vs long run planning • Best use of resources

5. Breakeven Analysis • Estimating the minimum performance needed • BE yield, price, costs, etc. • 2 main situations • Compare Revenues to Costs (VC or TC) • Compare Return to Returns • Returns of Corn to Returns of Soybeans

6. Basic Breakeven Formulas • Total Revenue = Total Costs • Price x Yield = VC + FC • Returns of Crop A = Returns of Crop B • Pa x Ya – VCa – FCa = Pb x Yb – VCb - FCb

7. Spreadsheets to the Rescue! • Breakeven Analysis • Formulas • Goal Seek function • Whole Farm Planning • Solver

8. Future Extension Programs? • Budgets & Breakeven Analysis • Ag. Financial Management • Financial Statements & Ratios • What ag lenders look for? • Spreadsheets in Ag. Management • Personal Financial Management