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 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, cattle trading margin and piggery feed margin tools help with the enterprise numbers. Our five-year plan spreadsheet helps with the whole-farm view.