Partial budget template

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Below is 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 are in current dollar terms and annual cost, where applicable.

Current situation

Example for current situation

$

Change scenario 1

Example for change scenario 1

$

Change scenario 2 etc.

$

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.

 

Repeat for additional changes in scenarios.

A  Gross income

284,400

A1  Extra gross income

137,500

 

B  Variable costs

165,500

B1  Extra variable costs

105,500

 

C  Total gross margin (A minus B)

118,900

C1  Extra total gross margin (A1 minus B1)

32,000

 

D  Total overhead costs

105,000

D1  Extra overhead costs

24,000

 

E  Operating profit before interest and tax (C minus D)

13,900

E1 Extra operating profit before tax (C1 minus D1)

8,000

 

 

 

F  Extra interest and tax (at marginal tax rate)

1,200

 

 

 

G  Extra operating profit after tax (E1 minus F)

6,800

 

H  Total capital invested

994,000

H1  Extra capital invested

165,000

 

 

 

I % Return on extra capital invested after extra interest and tax (G ÷ H1) x 100**

4.12%**

 

 

 

J  Whole enterprise total capital (H + H1)

1,159,000

 

 

 

K  Changed whole enterprise operating profit before extra interest and tax (E + E1)

21,900

 

% Return on capital before interest and tax (E÷H) x 100

1.4%

New enterprise return on total capital before interest and tax

(K ÷ J) x 100

1.9%

 

** 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’. Use this to calculate your own partial budget.

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 station go into the area of next highest return on marginal capital invested, and
  • 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 income

Income from sale of cattle will be the main source, but there may be others like agistment.

  • Variable costs

Costs associated with cattle health, transport, casual labour, etc.

  • Overhead costs

Operator’s labour and management, permanent and part time paid labour, depreciation of plant and improvements and administration costs, etc.

  • Capital investment

Value of lease and improvements, cattle value, plant and equipment.