# Adding a new enterprise

A free short course from Farm CFO by Clunes Rural. 5 lessons, about 25 minutes in all. No sign-up.

Work out whether a new pig, cattle or sheep enterprise will pay, what it needs approved, how much cash it takes and how to show the bank.

Who it's for: Pig, cattle and sheep farmers thinking about adding a new line of production to the farm.

You'll be able to:
- Compare a new enterprise with what it would push aside
- List the approvals and biosecurity steps to check before you spend
- Work out peak funding and the payback year
- Test the downside and take a clear plan to the bank

## Lesson 1: Is it worth it?

A new enterprise is a business decision before it is a farming one. It has to earn more than it costs. It also has to earn more than the land, cash and time would earn if you left them where they are. That second test is the one people skip.

## Start with the gross margin

The usual first number is the gross margin. [NSW DPI](https://www.dpi.nsw.gov.au/agriculture/budgets/about) defines it as the gross income from an enterprise less the variable costs of earning it. Variable costs are the ones that go up and down with the enterprise, like feed, vet bills, shearing and freight. Fixed costs, such as depreciation, interest, rates and permanent labour, are left out. So a gross margin is not profit. It is a fair way to compare one enterprise with another.

## Measure it two ways

- **Per hectare.** Use this when land is the tight resource. For example, trading steers against breeding cows on the same paddocks.
- **Per dollar of capital.** Use this when cash is the tight resource. Capital is the money you put in up front. A piggery is the clearest case, because sheds and stock tie up a lot of it.

## What will it push aside?

A new enterprise rarely gets its own land, labour and gear. It borrows them from what you already run. Go through each one:

- **Land and feed.** Will the new stock and the old stock want the same paddock in a dry spring?
- **Labour.** Pigs need care every day. Who does it at calving or shearing?
- **Water.** Housed stock need reliable water, and the rules can differ.
- **Your time.** This runs out first. A new enterprise takes months to learn.

If the new enterprise pushes something else down, take that lost income off its gross margin. Then take off any new overheads, like extra wages or insurance. Overheads are costs that don't change much with the size of an enterprise.

## Is the current business working first?

Sometimes the best new enterprise is the one you already run, done better. If your cows earn less per hectare than a district budget, closing that gap can be cheaper than building sheds. It also adds no new debt.

A rough check is enough at this stage. If the idea still looks good on rough numbers, it is worth the full budget in lesson 3. Our [go or no-go checklist](https://farmcfo.com.au/templates/new-enterprise-go-or-no-go) lists the questions to answer before you commit, and our guide to [adding a new enterprise](https://farmcfo.com.au/guides/adding-a-new-enterprise) goes deeper.

### Worked example

**Invented example.** The Harlows (an invented family) run cows. They lease out 250 ha they don't use for $15,000 a year. They are thinking about taking it back and running 500 first-cross ewes on it.

A district sheep budget suggests a gross margin of about $130 a ewe. That is $65,000 for 500 ewes. Take off the $15,000 of lease income they would lose and $10,000 of new overheads, and $40,000 a year is left.

To start, they need $80,000 for fencing and water and $125,000 for ewes (500 at $250). That is $205,000 of capital. $40,000 divided by $205,000 is about 19.5% a year, before interest. Their loan rate is an invented 8%. So the idea is worth a full budget, but it is not yet a yes.

Open the go or no-go checklist: https://farmcfo.com.au/templates/new-enterprise-go-or-no-go

### Check your understanding

1. What does a gross margin leave out?
   Answer: Fixed costs like interest, rates and permanent labour. NSW DPI defines a gross margin as income less the variable costs of earning it. Fixed costs such as depreciation, interest, rates and permanent labour are left out, so it is not a profit figure.
2. When is a gross margin per dollar of capital the most useful measure?
   Answer: When cash is the tight resource, such as for a piggery. Per dollar of capital shows how hard your money is working. It matters most when sheds and stock tie up a lot of cash.
3. A new enterprise will graze country that now earns lease income. What should you do with that lease income?
   Answer: Take it off the new enterprise's margin. The lease income is lost if you take the land back. Taking it off the new enterprise's margin shows what the change really adds.

## Lesson 2: Approvals and biosecurity

This is the part that catches people out. Approvals can take months, and some ideas are not allowed at all in some places. Check before you pay a deposit on anything.

Rules differ by state and by council. Where we give details, they are for NSW, checked in October 2026. Ring your council and your state agriculture department for the rules where you farm.

## Planning and council

Intensive enterprises need the most checking. [NSW DPIRD](https://www.dpird.nsw.gov.au/dpi/animals/pigs/planning-and-the-environment) says keeping pigs is classed as intensive livestock agriculture, including free-range pigs. It is prohibited in some land-use zones. Council decides the development application, which is the formal request for approval. Councils can also cap pig numbers and set buffers from sensitive sites nearby.

Bigger operations may need an environment licence too. In NSW, a piggery built for more than 2,000 pigs or 200 breeding sows needs a licence under the Protection of the Environment Operations Act 1997.

A feedlot also needs an early talk with council. Grazing sheep or cattle on country already used for grazing usually needs much less, but still ask.

## Water and effluent

Housed stock need reliable water, and the water rules can be different from those for grazing stock. Sheds also make effluent, which is the manure and wash water. It needs somewhere to go, so cost the ponds and reuse area into the build.

## Biosecurity and traceability

Biosecurity means keeping pests and diseases out. Traceability means being able to trace where stock have been.

- **PIC.** A property identification code is a number for the land where stock are kept. In NSW, [DPIRD says](https://www.dpird.nsw.gov.au/dpi/animals/pigs/identifying-and-moving-pigs) you get it from Local Land Services.
- **Pigs.** In NSW, pigs must be identified before they move. A PigPass NVD, the movement paperwork, must go with them to a saleyard, abattoir or another farm. The person receiving them records the move within two working days, and the NVD is kept for three years.
- **Cattle and sheep.** [Integrity Systems Company](https://www.integritysystems.com.au/about/news--events/news/2026/integrity-guidance-for-new-red-meat-producers/) says new producers should get a PIC, register for an NLIS account and seek LPA accreditation. LPA is the red meat industry's on-farm assurance program. Most red meat processors and retailers need stock from an LPA-accredited property.

## Put approvals in the budget

Approvals cost money and time. Budget for consultants, studies and fees. Then add the cost of waiting, because loans don't stop charging interest while you wait. Approvals are one of the first boxes on our [go or no-go checklist](https://farmcfo.com.au/templates/new-enterprise-go-or-no-go).

### Worked example

**Invented example.** The Duncans (invented) want to build a piggery on their NSW farm. Their first sketch was 250 sows. That is over the 200 breeding sow line, so in NSW it would need an EPA licence as well as council consent. They decide to talk to council and the EPA before choosing a size.

They budget for approvals (invented figures, not quotes): a site plan at $8,000, an effluent and odour study at $12,000 and application fees of $3,500. That is $23,500 before a shed goes up.

They have already borrowed $200,000 to buy the land, at an invented 9%. If approval takes 4 months longer than planned, that is $200,000 x 9% x 4 ÷ 12 = $6,000 of extra interest.

Try the piggery feed margin calculator: https://farmcfo.com.au/tools/piggery-feed-margin

### Check your understanding

1. Who should you ring first about the rules for a new piggery?
   Answer: Your council and state agriculture department. Rules differ by state and council, and council decides the development application. Check with them before you spend.
2. In NSW, which piggery needs an EPA licence?
   Answer: One built for more than 2,000 pigs or 200 breeding sows. NSW DPIRD says a licence under the Protection of the Environment Operations Act 1997 is needed for a piggery built for more than 2,000 pigs or 200 breeding sows.
3. What is a PIC?
   Answer: A property identification code for the land where stock are kept. A PIC identifies the property where stock are kept. In NSW it comes from Local Land Services.

## Lesson 3: The enterprise budget

Once the rough check looks good, build a proper enterprise budget. This is the gross margin for one normal year, once the enterprise is at full size. Every number in it should have a note saying where it came from.

## Start from a district budget

Don't start with a blank page. State agriculture departments publish gross margin budgets for common enterprises. In NSW, [DPI's livestock budgets](https://www.dpi.nsw.gov.au/agriculture/budgets/livestock) cover beef and sheep. Pick the one closest to your plan. Then change it to your own prices, weights, weaning rates and costs. The page doesn't list pig budgets, so for pigs start from industry figures or your own.

## The income lines

Income is what you sell. For sheep that might be lambs, cull ewes and wool. For cattle it might be steers, heifers and cull cows. For pigs it is mostly pigs sold to a processor. Work each line out as a sum: number sold, times weight, times price.

## The variable cost lines

Variable costs go up and down with the size of the enterprise. Common lines are:

- Replacement stock, such as ewes or heifers bought in
- Animal health, like drench, vaccines and vet visits
- Shearing, crutching or other contract work
- Feed and supplements
- Selling costs, like freight, commission and levies

Leave fixed costs out of the gross margin. Rates, insurance, permanent wages and interest come in later, in the whole-farm budget.

## Write down every assumption

An assumption is a number you have chosen or estimated, like a lamb price or a weaning rate. Write each one down, with where it came from. The bank will ask. More to the point, you will want to test them in lesson 5.

Be honest about the first year. A new enterprise rarely hits district averages straight away. You are learning, and the stock are settling in.

## Then the whole-farm budget

Run the whole farm as it is. Then run it again with the new enterprise in. Include the income you lose from anything it pushes aside, the new overheads and the interest on new borrowing. The difference is what the new enterprise really adds.

Our [sheep gross margin](https://farmcfo.com.au/tools/sheep-gross-margin), [cattle trading margin](https://farmcfo.com.au/tools/cattle-trading-margin) and [piggery feed margin](https://farmcfo.com.au/tools/piggery-feed-margin) tools help with the enterprise numbers. Our [five-year plan spreadsheet](https://farmcfo.com.au/downloads/farm-cfo-five-year-plan.xlsx) helps with the whole-farm view.

### Worked example

**Invented example.** The Harlows' 500 ewes at full size, weaning 120% (600 lambs). All figures are invented.

| Line | Sum | Amount |
|---|---|---|
| Lambs | 600 x 22 kg carcase x $8.00/kg | $105,600 |
| Cull ewes | 100 x $120 | $12,000 |
| Wool | 500 x 4 kg x $4.00/kg | $8,000 |
| **Income** | | **$125,600** |
| Replacement ewes | 100 x $250 | $25,000 |
| Health and shearing | 500 x $18 | $9,000 |
| Feed | 500 x $20 | $10,000 |
| Selling costs | 10% of lamb sales | $10,560 |
| **Variable costs** | | **$54,560** |
| **Gross margin** | | **$71,040** |

That is about $142 a ewe. It is a bit better than the $130 rough figure, so the idea still stands.

Try the sheep gross margin calculator: https://farmcfo.com.au/tools/sheep-gross-margin

### Check your understanding

1. What is a good starting point for an enterprise budget?
   Answer: A published district gross margin budget, changed to your own figures. District budgets give you a tested layout and typical figures. You then change them to suit your own place.
2. Which of these belongs in the gross margin as a variable cost?
   Answer: Feed and supplements. Feed goes up and down with the size of the enterprise, so it is a variable cost. Rates and interest are fixed costs.
3. Why write down every assumption?
   Answer: So you can test them later and show the bank where they came from. Written assumptions can be checked and tested. The bank will ask where your numbers came from.

## Lesson 4: The build-up cashflow and peak funding

Every new enterprise spends money before it earns any. The time between the first dollar out and steady income is the build-up. The longer it runs, the more cash you need to carry it.

## Two kinds of money

A new enterprise usually needs two kinds of money:

1. **Capital** for things that last, like sheds, yards, fencing, water or breeding stock. This is often paid for with a term loan, which is a set amount borrowed over a set number of years.
2. **Working capital** for things you buy and sell, like trading stock and feed. This is often carried on an overdraft, which lets your account go below zero up to a limit.

Mixing them up causes trouble. If you pay for a shed out of the overdraft, the overdraft may not come back down at sale time. Our guide to [overdrafts and seasonal finance](https://farmcfo.com.au/guides/overdrafts-and-seasonal-finance) explains how these generally work.

## Build it month by month

Put the build-up in a cashflow. That is a list of cash in and cash out for each month, with a running balance. Do the first year month by month, then by quarter or year. Run it until income is steady, plus a few months more.

The build-up looks different for each enterprise:

- **Trading stock.** A big outlay to buy, small running costs, then one lump of income at sale.
- **Breeding sheep or cattle.** Stock and fencing up front. Sales grow over a few years.
- **A piggery.** Approvals, sheds and effluent works, then breeding stock, then weekly feed bills for months before the first sales.

## Peak funding and payback

Two numbers matter most.

- **Peak funding** is the most cash the enterprise needs at any point. It is the lowest point of the running balance. It often comes later than you think, because interest and running costs keep adding up after the build.
- **The payback year** is when the running balance gets back to zero. That is when the enterprise has paid back everything it cost, including interest.

Include interest on the money borrowed. Leaving it out makes every enterprise look better than it is.

## Check the whole farm

Now add the new enterprise to the farm's own cashflow. Look at the overdraft at its lowest point each year. Does it stay inside the limit? If not, you need a separate facility, agreed before you buy.

Our [new enterprise payback calculator](https://farmcfo.com.au/tools/new-enterprise-payback) works out peak funding and payback for you. The [build-up spreadsheet](https://farmcfo.com.au/downloads/farm-cfo-new-enterprise-build-up.xlsx) does it month by month, and the [cashflow forecaster](https://farmcfo.com.au/tools/cashflow-forecaster) checks the whole farm.

### Worked example

**Invented example.** The Harlows spend $205,000 up front. The flock builds up to a gross margin of $25,000 in year 1, $50,000 in year 2, then $71,040 a year. Each year they take off $15,000 of lost lease income and $10,000 of new overheads, which is $25,000. Interest is an invented 8% on the balance owing at the start of each year.

| Year | Margin less $25,000 | Interest | Balance at year end |
|---|---|---|---|
| Start | | | minus $205,000 |
| 1 | $0 | $16,400 | minus $221,400 |
| 2 | $25,000 | $17,712 | minus $214,112 |
| 3 | $46,040 | $17,129 | minus $185,201 |

Peak funding is $221,400, at the end of year 1, not on day one. Carried on, the balance passes zero in year 9, so that is the payback year. The ewes still have a sale value, but it is a long wait.

Try the new enterprise payback calculator: https://farmcfo.com.au/tools/new-enterprise-payback

### Check your understanding

1. What is peak funding?
   Answer: The most cash the enterprise needs at any point. Peak funding is the lowest point of the running balance. It tells you how much finance you need to arrange.
2. Why should a shed usually not be paid for out of the overdraft?
   Answer: The overdraft may not come back down at sale time. A shed is a long-term asset. If it sits in the overdraft, stock sales won't clear it, and the overdraft stays high.
3. In the Harlows' example, when is peak funding reached?
   Answer: At the end of year 1. Interest of $16,400 is added in year 1 and the margin only just covers the lost lease and overheads, so the balance is lowest at the end of year 1.

## Lesson 5: Testing the downside and taking it to the bank

A budget shows what happens if things go to plan. A downside test shows what happens if they don't. Do it before you commit, not after.

## How to test the downside

Change one thing at a time, then a few together:

- **Price.** Drop the sale price. A fall of 10% to 20% is a fair test for livestock.
- **Costs.** Lift the biggest cost, often feed. In a dry year, feed can cost far more than the budget.
- **Production.** Cut the lambing, calving or weaning rate, or the number of pigs sold.
- **Time.** Slow the build-up. Approvals run late, and stock take time to settle.

Look at what each change does to the gross margin, the peak funding and the payback year. Then ask one honest question. If it only works when everything goes right, it doesn't work yet.

A bad result doesn't always mean no. It might mean a smaller start, a different mix or more cash in reserve before you begin.

## Taking it to the bank

Talk to the bank early, with your numbers in hand. [business.gov.au](https://business.gov.au/finance/funding/apply-for-a-business-loan) says lenders usually want to see your business plan before they approve a loan. You may also need to provide financial reports and forecasts.

For a new enterprise, a good pack has:

1. A short plan: what you'll do, why, and who will do the work.
2. The enterprise budget, with every assumption written down.
3. The build-up cashflow, showing peak funding and the payback year.
4. The whole-farm cashflow, with and without the new enterprise.
5. The downside test, and what you'd do if it happened.
6. Approvals: what you have, what you've applied for and what's still to come.
7. What you are asking for: how much, what for and which kind of facility.

Showing the downside test can feel risky. In our experience it does the opposite. It shows the bank you have thought it through, and it starts a better talk about how to set up the loan.

## Your go or no-go

Work through the [go or no-go checklist](https://farmcfo.com.au/templates/new-enterprise-go-or-no-go). Each box you can't tick is a risk to sort out first. Our [bank ratios page](https://farmcfo.com.au/templates/bank-ratios) shows the numbers a credit team works out from your plan.

This course is general information, not credit advice, and the bank makes its own decision. If you'd like help building the budget and cashflow from your own figures, that's our [Adding an enterprise](https://farmcfo.com.au/adding-an-enterprise) service.

### Worked example

**Invented example.** The Harlows test a bad year at full size, starting from the $71,040 gross margin. Each change is added to the one before.

| Change | Gross margin |
|---|---|
| Normal year | $71,040 |
| Lamb price 15% lower (selling costs fall too) | $56,784 |
| Feed $25,000 instead of $10,000 | $41,784 |
| Weaning 100% instead of 120% (500 lambs) | $28,320 |

Now take off the $15,000 of lost lease income and $10,000 of overheads. That leaves $3,320. Year 3 interest is $17,129, so the year ends $13,809 behind.

Two bad years early on would push peak funding higher. So they decide to start with fewer ewes and keep leasing out part of the block.

Try the borrowing capacity calculator: https://farmcfo.com.au/tools/borrowing-capacity

### Check your understanding

1. What is a downside test?
   Answer: Re-running the numbers with lower prices, higher costs or a slower start. A downside test shows what happens when things don't go to plan, so you can decide before you commit.
2. According to business.gov.au, what do lenders usually want to see before they approve a loan?
   Answer: Your business plan. business.gov.au says lenders usually want to see your business plan before they approve a loan. You may also need financial reports and forecasts.
3. The downside test shows a loss in a bad year. What is a sensible next step?
   Answer: Look at a smaller start, a different mix or more cash in reserve. A bad result is useful. It points to changes that make the plan stronger, and the bank will want to see you have thought about it.

## Next step

Adding an enterprise: https://farmcfo.com.au/adding-an-enterprise

## Sources

- [NSW DPI, About gross margin budgets](https://www.dpi.nsw.gov.au/agriculture/budgets/about)
- [NSW DPI, Livestock gross margin budgets](https://www.dpi.nsw.gov.au/agriculture/budgets/livestock)
- [NSW DPIRD, Pigs: planning and the environment](https://www.dpird.nsw.gov.au/dpi/animals/pigs/planning-and-the-environment)
- [NSW DPIRD, Identifying and moving pigs](https://www.dpird.nsw.gov.au/dpi/animals/pigs/identifying-and-moving-pigs)
- [Integrity Systems Company, Integrity guidance for new red meat producers (2026)](https://www.integritysystems.com.au/about/news--events/news/2026/integrity-guidance-for-new-red-meat-producers/)
- [business.gov.au, Apply for a business loan](https://business.gov.au/finance/funding/apply-for-a-business-loan)

General information only, not financial, tax, legal or credit advice. These courses are not nationally accredited training.