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 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 lists the questions to answer before you commit, and our guide to adding a new enterprise goes deeper.