Business owners must often make decisions about changes they are either contemplating making or that have to be made. Many of the decisions are incremental, such as adding land, expanding or reducing an enterprise or changing how an enterprise is managed. This partial budget tool, from Nebraska extension educator Robert Tigner, is useful for farm managers when these situations arise.
"The process and power of this evaluation is valuable especially so in the new crop environment we are in," says Tigner. "Crop producers can evaluate the change to profitability if they change fertilizer, chemical and seed or other crop inputs. It can give them an analysis if reductions would increase profitability, or reduce it."
A partial budget only includes resources that will be changed. It does not consider the resources in the business left unchanged. Only the change under consideration is evaluated for its ability to increase or decrease income in the farm business. Partial budgeting can assist managers in making informed decisions. But this budgeting process can only estimate possible financial impacts, not assure them.
Management decisions and chance can change the projections. These may result in better or poorer than expected performance. Repeating the analysis using different assumptions about key variables will give some idea about the degree of risk involved in making the proposed change.
We're featuring the spreadsheet as our Farm Futures Financial Tool-of-the-month. You can download it by clicking on on the download link on this page.
Do you have a spreadsheet that's made a difference on your operation that you'd be willing to share with other readers? Drop us a line at [email protected] with a description of the spreadsheet. We'll pay $100 if we feature your farmer-written noncommercial program as our Financial Tool of the Month.