Budgeting for Grass Fed Success

Budgeting for Budgeting for Grass Fed SuccessGrass Fed Success

Joe Colyn, OriginzJoe Colyn, Originz

Gary Matteson, Farm Credit CouncilGary Matteson, Farm Credit Council

Allen Williams, Livestock Management ConsultantsAllen Williams, Livestock Management Consultants

Business & Financial Skill Needs of Beginning Farmers & Ranchers

• EIEIO Project– Evaluating and Improving Educational

Instruments and Outreach for Beginning Farmers and Ranchers

• Community of Practice– Southeastern USA…and

wider

Looking to the Future

• What are your skills?What are your skills?

• What is your tolerance for risk?What is your tolerance for risk?

• What is your capacity to deal with What is your capacity to deal with ambiguity?ambiguity?

• What is your capacity to lead others?What is your capacity to lead others?

• What is your capacity for self-discipline?What is your capacity for self-discipline?

What is your capacity to gather information?

define success

acres gross sales

tractors yield/acre

cows net profit

define success

enough net profit to meet your goals for your family and your business

• Plan to succeed, plan to be happy

• Tell your story in a business plan

• A budget is a plan in numbers

• Plan for contingencies

know your business

Historical Dollars % of Sales  

Sales (total income) $367,200 100%  

- Cost of Goods Sold: (variable costs)

$312,600 85%  

= Gross Margin: $54,600 15%  

- Overhead(fixed costs) $7,800 2%  

= Profit (Net Margin) $46,800 13%  

The 5-Line Income Statement

This 5-Line Income Statement

Becomes the basis of this Cash Flow Analysis Spreadsheet

Showing Annual Business Results

Historical Dollars % of Sales  

Sales (total income) $367,200 100%  

- Cost of Goods Sold: (variable costs)

$312,600 85%  

= Gross Margin: $54,600 15%  

- Overhead(fixed costs)

$7,800 2%  

= Profit (Net Margin) $46,800 13%  

The Concept of Cash Flow Budgeting

GROSS RETURNS PER 200 HEAD also called Total Sales, Total Income: 367,200.00$

As % Total Sales 100%

A. TOTAL VARIABLE COSTS also called Cost of Goods Sold or COGS 312,600.00$ 85%

GROSS MARGIN (Total Sales-Variable Costs=Gross Margin) 15% 15%

B. TOTAL FIXED COSTS or Overhead: 7,800.00$ 2%

NET MARGIN (Sales-Variable Costs-Fixed Costs=Net Return) Also called net profit $46,800.00 13%

Annual

Grass Fed Cash Flow Analysis

Summary of Annual Results from Spreadsheet (the 5-Line Income Statement)

GROSS RETURNS PER 200 HEAD also called Total Sales, Total Income: $ - $ - $ - $ - $ 36,720.00 $ 73,440.00 $ 73,440.00 $ - $ - $ - $ 73,440.00 $ 110,160.00 $ 367,200.00

As % Total Sales 100%

Jan Feb Mar April May June July Aug Sept Oct Nov Dec Annual

A. TOTAL VARIABLE COSTS also called Cost of Goods Sold or COGS $ 116,033.33 $ 9,033.33 $ 9,033.33 $ 7,633.33 $ 7,633.33 $ 114,633.33 $ 7,633.33 $ 7,633.33 $ 7,633.33 $ 7,633.33 $ 9,033.33 $ 9,033.33 $ 312,600.00 85%

GROSS MARGIN (Total Sales-Variable Costs=Gross Margin) This is based on results from previous year of operation, or it is estimated from a benchmark 15% 15%

B. TOTAL FIXED COSTS or Overhead: $ 650.00 $ 650.00 $ 650.00 $ 650.00 $ 650.00 $ 650.00 $ 650.00 $ 650.00 $ 650.00 $ 650.00 $ 650.00 $ 650.00 $ 7,800.00 2%

NET MARGIN (Sales-Variable Costs-Fixed Costs=Net Return) Also called net profit or net income in dollars, or net profit margin when described as a percentage $46,800.00 13%

E. MONTHLY CASH FLOW (D-C) $ (116,683.33) $ (9,683.33) $ (9,683.33) $ (8,283.33) $ 28,436.67 $ (41,843.33) $ 65,156.67 $ (8,283.33) $ (8,283.33) $ (8,283.33) $ 63,756.67 $ 100,476.67 $ 46,800.00

G. Beginning Cash (Checking Account) $175,000.00 $58,316.67 $48,633.33 $38,950.00 $30,666.67 $59,103.33 $17,260.00 $82,416.67 $74,133.33 $65,850.00 $57,566.67 $121,323.33

H. Ending Cash (Checking Account) $58,316.67 $48,633.33 $38,950.00 $30,666.67 $59,103.33 $17,260.00 $82,416.67 $74,133.33 $65,850.00 $57,566.67 $121,323.33 $221,800.00

Grass Fed Cash Flow AnalysisMonthly Results Spreadsheet

Cash flows are highlighted in

yellow

GROSS RETURNS PER 200 HEAD also called Total Sales, Total Income: -$ -$ -$ -$ 36,720.00$ 73,440.00$ 73,440.00$ -$ -$ -$ 73,440.00$ 110,160.00$ 367,200.00$

As % Total Sales 100%

VARIABLE COSTS PER 200 HEAD:Jan Feb Mar April May June July Aug Sept Oct Nov Dec Annual

Purchase Price 105,000.00$ 105,000.00$ 210,000.00$ Transport 2,000.00$ 2,000.00$ 4,000.00$

Summer Pasture 4,800.00$ 4,800.00$ 4,800.00$ 4,800.00$ 4,800.00$ 4,800.00$ 4,800.00$ 33,600.00$ Winter Hay - Forage 6,200.00$ 6,200.00$ 6,200.00$ 6,200.00$ 6,200.00$ 31,000.00$

Other Feed 500.00$ 500.00$ 500.00$ 500.00$ 500.00$ 500.00$ 500.00$ 500.00$ 500.00$ 500.00$ 500.00$ 500.00$ 6,000.00$ Protein & Mineral 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 4,000.00$

Hired Labor 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 4,000.00$ Veterinary & Supplies 250.00$ 250.00$ 250.00$ 250.00$ 250.00$ 250.00$ 250.00$ 250.00$ 250.00$ 250.00$ 250.00$ 250.00$ 3,000.00$

Utilities, Fuel, Oil 583.33$ 583.33$ 583.33$ 583.33$ 583.33$ 583.33$ 583.33$ 583.33$ 583.33$ 583.33$ 583.33$ 583.33$ 7,000.00$ Facility & Equip Repair 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 2,000.00$

Breeding Charge -$ Marketing 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 4,000.00$

Misc 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 2,000.00$

Interest 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 2,000.00$ A. TOTAL VARIABLE COSTS 116,033.33$ 9,033.33$ 9,033.33$ 7,633.33$ 7,633.33$ 114,633.33$ 7,633.33$ 7,633.33$ 7,633.33$ 7,633.33$ 9,033.33$ 9,033.33$ 312,600.00$ 85%

GROSS MARGIN (Total Sales-Variable Costs=Gross Margin) This is based on results from previous year of operation, or it is estimated from a benchmark 15%

FIXED COSTS PER 200 HEAD:Depreciation

Interest 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 166.67$ 2,000.00$ Insurance 150.00$ 150.00$ 150.00$ 150.00$ 150.00$ 150.00$ 150.00$ 150.00$ 150.00$ 150.00$ 150.00$ 150.00$ 1,800.00$ Death Loss 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 333.33$ 4,000.00$

B. TOTAL FIXED COSTS or Overhead: 650.00$ 650.00$ 650.00$ 650.00$ 650.00$ 650.00$ 650.00$ 650.00$ 650.00$ 650.00$ 650.00$ 650.00$ 7,800.00$ 2%

NET MARGIN (Sales-Variable Costs-Fixed Costs=Net Return) Also called net profit or net income in dollars, or net profit margin when described as a percentage $46,800.00 13%

C. TOTAL COSTS PER 200 HEAD: (A+B) 116,683.33$ 9,683.33$ 9,683.33$ 8,283.33$ 8,283.33$ 115,283.33$ 8,283.33$ 8,283.33$ 8,283.33$ 8,283.33$ 9,683.33$ 9,683.33$ 320,400.00$

GROSS RETURNS PER 200 HEAD: Jan Feb Mar April May June July Aug Sept Oct Nov Dec TotalIncome

Steers 36,720.00$ 73,440.00$ 73,440.00$ 73,440.00$ 110,160.00$ 367,200.00$ Heifers -$ Cull Cows -$ Cull Heifers -$ D. GROSS RETURNS/200 HEAD (Sales): -$ -$ -$ -$ 36,720.00$ 73,440.00$ 73,440.00$ -$ -$ -$ 73,440.00$ 110,160.00$ 367,200.00$

E. MONTHLY CASH FLOW (D-C) (116,683.33)$ (9,683.33)$ (9,683.33)$ (8,283.33)$ 28,436.67$ (41,843.33)$ 65,156.67$ (8,283.33)$ (8,283.33)$ (8,283.33)$ 63,756.67$ 100,476.67$ 46,800.00$

G. Beginning Cash (Checking Account) $175,000.00 $58,316.67 $48,633.33 $38,950.00 $30,666.67 $59,103.33 $17,260.00 $82,416.67 $74,133.33 $65,850.00 $57,566.67 $121,323.33

H. Ending Cash (Checking Account) $58,316.67 $48,633.33 $38,950.00 $30,666.67 $59,103.33 $17,260.00 $82,416.67 $74,133.33 $65,850.00 $57,566.67 $121,323.33 $221,800.00

Grass Fed Monthly Cash Flow Analysis

Pick-

up Tru

ck?

Pick-

up Tru

ck?

how quickly can you make money?

• Goal of producing cash in 6 months

• Budget to accomplish goal

• Pay your bills

• Family living expenses

Managing inventory/expense…the time factor…

24-36 months

1-2 months

• Record keeping is required for taxes• Ultimate goal is to manage from records• Need up-to-date and accurate records• Create budget with expectations and

measurable results

plan your business

starting in the beef business

Like any small business:

income

expenses

cash flow

things to do before starting

• Save money

• Protect credit rating

• Gain experience

• Network

• Plan

Livestock…a 3, 6, 12, 24, 30

month cycle…

Riding it out…to succeed.

• Cycle for cash flow…

North Dakota: Returns Per Cow

• 2012 Returns: Cow/Calf Operation*– Average : $171.70 Net return per cow– Low 20%: -$34.65– High 20%: $347.25

– *Based on 527 wwt @ $157.34/cwt.

North Dakota:Backgrounding Returns

• 2012 Backgrounding Operation Net Returns*– Average: $17.31/cwt– Low 20%: -$73.12/cwt– High 20%: $66.64/cwt

– *Based on avg gain of 154 lbs and sale price of $143.46/cwt.

North Dakota:Corn Net Returns

• 2012 Net Corn Returns Per Acre:– Region 2

• Average: $252.40• Low 20%: $52.74• High 20%: $447.97

– Region 3• Average: $383.96• Low 20%: $93.07• High 20%: $554.06

Grass Fed Beef Net Returns

• Return Per Head– Average Range: $150 - $350– Low 20%: $10 - $80– High 20%: $380 - $450

• Return Per Acre– Average Range: $180 - $300– Low 20%: $15 - $65– High 20%: $325 - $400

Business Cycle ~ Cash Flow Cycle

• Plan, prepare – avoid surprises, achieve success

Helpful Resource Links

• www.finbin.umn.edu• www.ndfarmmanagement.com• www.iowabeefcenter.org• www.grazinghandbook.com• www.bcscd.com • www.Mccc.msu.edu • www.Mandan.ars.usda.gov • www.greencoverseed.com

Three basic business skills:

1. Financial

2. Production

3. Marketing

If you are lucky you have two of these skills.

Partner with or hire the skill you don’t have.

manage your business

.www.annualcreditreport.com

Thank You

• Contact us:

• Joe Colyn– 616 581 1360 [email protected]

• Gary Matteson– 202 879 0840 [email protected]

• Allen Williams– 662 312 6826 [email protected]–