Acreage Services bussiness idea

smstonypoint · Apr 5, 2011

204saskman said:
Well like i was saying before, im fairly mechanically inclined, i maintain all of my vehicles and my neighbours equipment too(mainly diesel). As for expenses, here is kind of a break down.

Tractor payment = 300/month( i pay this regarless)
Truck payment = 0.00(paid it off long ago)
Trailer payment = 0.00(paid off)
Truck insurance commercial policy = 130 month
Tractor Insurance comercail policy = 80 month with 2 million liabily/damage/disability/replacment
Trailer insurance = 10/month
Fuel(aprox) = 1500/ month(tractor will be burning purple,truck clear)
Maintenance truck and trailer and tractor = 600/month
misc = 750/month

I dont know, maybe im a bit off. so say 2500-3000 month to run everything. But there is also consideration that there is a decent market for bussiness if a guy wants to make the effort. Like i said its kinda a thought at the moment, its either that or just keep working for the man. Thanks for the advice so far guys and keep it coming

If you will indulge a retired professor, this may be a teachable moment regarding break-even analysis. You can use the analysis to determine the service quantity you would need to provide in order to cover your total cost (fixed and variable) during a given time period. I will use hours/year in my discussion, but you can change the units of measurement to suit your purposes.

The formula is Q* = TFC/(P-AVC), where Q* is the break-even quantity (hours/year), TFC is your total annual fixed cost ($/year), P is the price you charge ($/hour), and AVC is your average variable cost ($/hour) of providing the service.

Total fixed costs are just that -- they do not vary with the amount of service you provide. These costs would include equipment depreciation, interest on your average investment in the equipment (the opportunity costs of the money you have tied up in your equipment), insurance, property taxes on equipment, etc.

Variable costs are just that -- they vary with the amount of service you provide. These costs would include fuel, lubricants, allowance for repairs and maintenance, your labor,etc. How should you value your labor? As an economist, I answer that you should use the opportunity cost of your time -- what you are giving up by providing agricultural services. For example, suppose you can earn $20/hour as an employee. You would be giving up that $20/hour by providing agricultural services.

Here's a link that may prove useful in estimating some of these costs.
Estimating Farm Machinery Costs A3-29 November 2009

If P < AVC, forget about it. If P > AVC but your actual output < Q*, you will cover your variable cost and a portion of your fixed costs. If your actual output > Q*, you will make a profit.

Note that some of the costs are non-cash expenses;e.g, depreciation, interest on investment, opportunity costs of you labor. You would need to construct a pro forma cash flow budget, say on a monthly basis, to account for the amount and timing of your estimated cash inflows and outflows; e.g., receipts, debt service, insurance payments, fuel, taxes, family living expenses, etc.

Good luck in your venture.

Steve

grsthegreat · Apr 5, 2011

smstonypoint said:
If you will indulge a retired professor, this may be a teachable moment regarding break-even analysis. You can use the analysis to determine the service quantity you would need to provide in order to cover your total cost (fixed and variable) during a given time period. I will use hours/year in my discussion, but you can change the units of measurement to suit your purposes.

The formula is Q* = TFC/(P-AVC), where Q* is the break-even quantity (hours/year), TFC is your total annual fixed cost ($/year), P is the price you charge ($/hour), and AVC is your average variable cost ($/hour) of providing the service.

Total fixed costs are just that -- they do not vary with the amount of service you provide. These costs would include equipment depreciation, interest on your average investment in the equipment (the opportunity costs of the money you have tied up in your equipment), insurance, property taxes on equipment, etc.

Variable costs are just that -- they vary with the amount of service you provide. These costs would include fuel, lubricants, allowance for repairs and maintenance, your labor,etc. How should you value your labor? As an economist, I answer that you should use the opportunity cost of your time -- what you are giving up by providing agricultural services. For example, suppose you can earn $20/hour as an employee. You would be giving up that $20/hour by providing agricultural services.

Here's a link that may prove useful in estimating some of these costs.
Estimating Farm Machinery Costs A3-29 November 2009

If P < AVC, forget about it. If P > AVC but your actual output < Q*, you will cover your variable cost and a portion of your fixed costs. If your actual output > Q*, you will make a profit.

Note that some of the costs are non-cash expenses;e.g, depreciation, interest on investment, opportunity costs of you labor. You would need to construct a pro forma cash flow budget, say on a monthly basis, to account for the amount and timing of your estimated cash inflows and outflows; e.g., receipts, debt service, insurance payments, fuel, taxes, family living expenses, etc.

Good luck in your venture.

Steve