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Dairy Business Farm Planning

Stage 3: Extra costs, extra revenues and extra risks

Only a full financial plan will show projected cash flow and profit each year for your proposal using the data you have supplied. Such a financial plan would take into account stock sales and purchases, all cash in and all cash out including loan repayments, drawings and taxation. It also allows for different scenarios to be evaluated e.g. impact of changing milk price.

However it is possible to have a quick look at the financial impact of your planned changes using a partial budget. This looks at the planned extra costs (or reduced revenue) and the expected extra revenue (or reduced costs). It is a quick way to see if your plan appears profitable, break even or shows a potential cash deficit.

Having completed your partial budget, you have to examine the net position and decide whether your plan is worthwhile. You also need to look at the risks to your plan.

There are four steps in completing Stage 3 of the farm plan.

Stage 3.1: stage3_1 (59KB, Word)

  1. Annual repayments if a new loan is required. Use app3 to estimate annual repayments (67KB, Word).
  2. Where own cash (savings) are used in the plan, there is a cost by foregoing the interest this money would make if invested elsewhere.
  3. Additional land rental if extra land is rented.
  4. Additional labour costs if additional labour is employed.
  5. Additional variable costs if additional cows are milked. Use your farm’s Variable Costs per cow from Profit Monitor or guideline figures in app4 (PDF).
  6. If overall farm stocking rate increases there will be an added cost to provide additional feed (grass, silage and/ or concentrates). This may be produced on farm by investments in soil fertility, reseeding, infrastructure and drainage or from additional purchased feed if grass growth cannot be increased. See Appendices app2 (PDF) and app5 (PDF) for guideline figures.
  7. Loss of other stock sales. For example, if cattle are displaced, this will be an annual loss of revenue from cattle sales each year.

>> Go to Stage 3.2