An enterprise budget is the basic building block of a farm plan. It is an estimate of the cost and returns associated with the production of a product or products that is referred to as an enterprise. It is a physical and financial plan for raising and selling a particular crop or livestock commodity, explains Richard Carkner, farm management professor emeritus at Washington State University.
These budgets are physical because they indicate the type and quantity of production inputs and outputs per unit. They are financial because they assign a cost to all of the inputs used to create whatever the enterprise produces.
Most enterprise budgets are for one year, or a representative one-year period if the enterprise’s production spans more than 12 months.
Why should you create enterprise budgets?
According to farm-management experts at Texas A&M University, when done correctly, enterprise budgets can help you manage your operation better by identifying the following:
- Which enterprise or enterprises contributes the highest return to fixed resources.
- Amount of labor needed.
- Amount and types of equipment needed for your combination of enterprises.
- How to best use your equipment on available land and facilities.
- Amount of operating capital needed.
- Production practices to use.
- Areas where you may cut cost or become more efficient.
- Breakeven prices and yields.
- Level of risk exposure within enterprises.
This information can then be used to develop marketing strategies, obtain financing, get help with cash-flow estimations, and make other key farm business decisions.