1.13 - Partial budget template
This template provides an example of a partial budget to plan, cost and test modest investment projects, and changes to operating procedures that will impact on enterprise budget if implemented. Figures in current dollar terms and annual cost, where applicable.
|Current situation||Current situation||Change scenario 1||Change scenario|
|From details of your current financial information, pull out the summary information into the categories below.||Assemble details of what the proposed change will involve and then summarise these into the categories below.|
|A Gross income||$||A1 Extra gross income||$|
|B Variable costs||$||B1 Extra variable costs||$|
|C Total gross margin (A minus B)||$||C1 Extra total gross margin (A1 minus B1)||$|
|D Total overhead costs||$||D1 Extra overhead costs||$|
|E Operating profit before interest and tax (C minus D)||$||E1 Extra operating profit before tax (C1 minus D1)||$|
|F Extra interest and tax (at marginal tax rate)||$|
|G Extra operating profit after tax (E1 minus F)||$|
|H Total capital invested||$||H1 Extra capital invested||$|
|I % Return on extra capital invested after extra interest and tax (G ÷ H1) x 100**||$|
|J Whole enterprise total capital (H + H1)||$|
|K Changed whole enterprise operating profit before extra interest and tax (E + E1)||$|
|% Return on capital before interest and tax (E÷H) x 100||$||New enterprise return on total capital before interest and tax (K ÷ J) x 100||$|
** Interpret this figure carefully as it is based on the marginal change in capital. This is used for comparing among the change scenarios only, not with the ‘current situation’.
The three critical goals of any decision to change enterprise investment strategies are that:
- it makes a good marginal return to capital over and above alternative less risky uses of capital, such as off-farm investment
- any additional investments in the farm go into the area of next highest return on marginal capital invested
- investments must increase the current rate of return, or significantly reduce risk. It won’t do this unless its marginal rate of return is higher than current return on total funds invested.
Examples of items in the returns and costs categories:
Gross incomeIncome from sale of cattle will be the main source, but there may be others like sale of excess hay and agistment.
Costs associated with cattle health, feed, pasture production, casual labour etc.
Operator’s labour and management, permanent and part-time paid labour, depreciation of plant and improvements and administration costs etc.
Capital investmentLand value, improvements, cattle value, plant and equipment.