The following is from The Clemson NC Handbook. The original publication is located at http://goats.clemson.edu/NC Handbook/analysis.htm. Thanks to Holly Jentsch, e-mail firstname.lastname@example.org, for her research in finding this valuable information.
Comment in an earlier section raised
a red flag about the unprofitable nature of goats kept as a hobby.
To be sure, some goat owners strive to run an efficient operation,
even though it may swim in a pool of red ink, created by excessive
investment in champion breeding stock, massive barns, and gleaming
white fences. Further, the farm manager may be overpaid, the feed
bill too high, and veterinary charges greater than that required
to eradicate the bubonic plague from the face of Europe.
Several years ago, the Farm Credit Banks
conducted a survey to find out how farmers spend their working
time. They found that 95% of the time was spent in production
activities, 4% in marketing, and a scarcely noticeable 1% in financial
analysis. Successful managers divide time spent among the three
areas much more evenly.
When enterprise analysis is mentioned
to many goat producers, they think in "yield per acre"
terms which apply to the goat world. Things such as percent kid
crop, weight of weanling kids, kids produced per doe, feed consumed
per head, and so on. If production efficiency is the only goal,
one can stop with such measures, all related to physical performance.
It makes good coffee shop talk, may win a ribbon at the county
fair, and requires only that substantial financial assistance
come from outside sources.
An accountant looks at an enterprise
in terms of costs and revenues, the difference in which is profits
or losses. He uses enterprise analysis to examine all factors
leading to the bottom line. Many of the numbers do indeed come
from physical performance measures, but with dollar values attached
In financial analysis, a producer first
does his goat farming on paper. If it looks inviting, then, and
only then, should he jump in. A trial run on paper won't guarantee
a profit, but will head off some mistakes, and will provide him
with a plan for action.
In the Southeast, financial arguments
encourage meat goat production. An abundance of lowcost
browse coupled with nearness to eastern markets invite a close
look at an investment opportunity.
Immigration rates into the United States
are now running about 60,000 persons per month. The majority of
immigrants come from cultures comfortable with the consumption
of goat meat.
Latins and Asians make up the bulk of
new immigrants, more than half of which are not as yet naturalized
citizens. Many of these people will be slow to move into the American
mainstream. They tend to concentrate in the major metropolitan
areas along the eastern seaboard, markets readily accessible from
Southeastern states. Market research is only beginning to assess
the strength of this market, but it is already known to be formidable.
Enterprise analysis, in a financial
sense, asks three questions: 1) Will it show a profit?. 2) Will
it cash flow? 3) Is it a good place to put one's time and money?
Each is discussed in turn.
Will it Show a Profit?
Projected profits come from projected
costs and revenues, otherwise known as budgets. A budget is like
a sharp knife; it comes in handy, but it can draw blood.
University prepared sample budgets may
look impressive, but no one can sit in an ivory tower somewhere
and tell an individual producer what it will cost to produce goats
on his farm. That is because no one operates exactly the same.
Rarely is it even close. A sample budget provides a good check
list, and it does help with some expenses which are difficult
to calculate, like tractor costs per hour. In short, it provides
an excellent starting point.
A producer who really desires to learn
whether or not his operation is profitable will begin with a sample
budget. He will then use the sample to construct an estimate of
costs and revenues which are uniquely his own. Sample budgets
are available, but in the U.S., meat goat budgets are not all
that common. Perhaps the best comprehensive budget analysis on
meat goats now available was done in Ontario, Canada in 1992.
Other good work comes from Australia and New Zealand.
A budget is based on a specified set
of production assumptions, and is designed to cover a stated period
of time, frequently one year. It is in reality a projection of
what is likely to happen. The budget sets up two basic categories,
one of costs and the other of revenues, the difference in which
is the projected profit or loss.
A word about costs. Certain costs are
incurred that relate directly to the enterprise being budgeted,
such as feed, fuel, and labor. These are known as variable costs.
Other costs will occur whether the enterprise is operated or not,
so long as one continues to maintain the farm. Taxes, insurance,
and depreciation are examples. Interest on the capital investment
is another. Such unavoidable costs are called fixed costs.
The point is that if the question is
whether or not to go into the goat business, and the goat enterprise
pays more than the variable costs, the producer is better off
financially by going in. He is at least paying part of those fixed
costs. It should be obvious that he cannot continue to operate
in such fashion forever. The short run operating decision, however,
is based on an excess of revenues above variable costs. This difference
is known as gross margin.
The longer run operating decision is
based on an excess of revenues above total costs, both fixed and
variable, and is called the operating profit or loss. But in the
longer run, time is provided to make certain adjustments in the
scheme of things.
Table 1 presents a sample budget, complete
with assumptions, revenues, costs, gross margin, and operating
|Table 1. Meat Goats, 50 Head Unit, Costs and Returns per Doe per Year*
|Sale of market animals (8 f, 27 m, @ $40)
|Sale of breeding stock (20 f, 10 m, @ $65)
|Sale of cull animals (8 does @ $55)
|Concentrate (0.5 lb x 100 days x $185/tn)
|Hay (3 lb x 120 days x $80/tn)
|Fertilizer, lime (0.4 ac x 1200 lb x $15/tn)
|Buck cost [($150 - $80/3) + $20) / 25
|Interest on opr money ($37.82 x 8.5% / 2)
|Overhead (8% x $39.42)
|Total variable costs
|Land (0.4 ac x $20)
|Interest on capital expense ($5,300 x 8.5%)
|Total fixed costs
|GROSS MARGIN (Rev - var costs)
|PROFIT (LOSS) (Rev - tot costs)
Weaned kids per doe exposed, 150%
Split kid crop, 40% NovemberDecember, 60% AprilMay
Replacement rate, 20%
Culling rate, 15%
Death loss, 5%
Purchase prices, does $100, bucks $150
Selling prices, market kids $40, breeding stock $65, culls $55
Interest rate 8.5%
This budget may not look attractive
in its present state. Certainly it's not going to make a John
D. Rockefeller out of anyone. To mean very much, it must be applied
to an individual farm. And even then, it should be used as a planning
tool. That means making adjustments which can improve the bottom
We have said the appropriate short term
decision is based on gross margin. In the above example, the gross
margin of $33.18 per doe is positive. In addition, the $33.18
would be ample to cover fixed costs of $17. We are left with a
projected annual profit of $16.20 per doe.
How soon could the investment in goats
be paid back? Investment in breeding stock is estimated to be
$5,300 (50 does and two bucks), or $106 per doe. Considering the
gross margin, less interest on the capital investment, there would
be available annually $24.18 (33.18 $9.00) to apply to the
$106 goat investment. The investment could then be recouped in
about four years.
Now to possibilities for improving the
budget: 1) Improve the kidding percentage. 2) Reduce feed costs.
3) Lower land costs. Good managers can find others, but these
three offer substantial opportunity, and are discussed in order
Note that the kid crop, estimated at
150%, under good management, and using mature does, can still
be improved. This could be helped by paying close attention to
herd health and breeding practices, but the big jump would come
from management, and would involve moving from an annual kid crop
to three crops every two years. Thus, a 150% kid crop would annualize
out at 225%. Admittedly, this would be difficult to achieve, but
175%, or even 200% may not be. A 175% crop would improve revenues
by nearly 15%.
Many meat goat owners receive their
guidance from reading dairy goat books. They keep the road hot
to the feed store. And they ignore their pastures. Young kids
need creep feed, if they are to gain a premium at the market.
Breeding does usually need flushing at the proper time. Lactating
does may need some help if pastures are dry or dormant. The rest
of the time, the goat herd needs to make a living on the farm.
In the budget above, concentrate and hay make up 44% of the variable
costs. If feed costs were cut by one fourth, the gross margin
would increase by 14%.
Land costs in the budget are shown to
be $20 per acre. This is high for goat pasture, but leaves room
for other fixed costs such as taxes and insurance, and perhaps
a modest amount for depreciation. Suppose the goats were run with
cattle in the same pasture. Crazy? It's done all over the world,
and can work in the Carolinas. Since the two animals do not generally
prefer the same feed, let the goats have the weeds and briars,
the multiflora rose and the cedar, and leave the grass and
clover to the cows. Land costs could be trimmed by a third. If
the $20 figure above is valid, that means a reduction in total
costs, which also amounts to an increase in profits, of $6.67
per doe. The profit figure has just jumped 41%!
Will it Cash Flow?
We hear a lot about bankruptcy these
days. That does not necessarily mean an operation is unprofitable,
nor that it has a negative net worth. It simply means there is
no way of meeting financial obligations when they are due. It
often occurs that one creditor panics and goes to see his lawyer,
and everybody else is forced to jump in; the result is lots of
Almost any enterprise, and goats are
no exception, requires an initial investment. It may be in the
form of breeding stock, and will likely include equipment, feed,
and supplies. The money needed to start the venture may come from
savings, but most of the time it will come from a lender. Revenues
are not expected to begin for a time. This means there may be
a period when cash is short, unless the shortfall is properly
All expense items create an obligation,
usually specific as to time. In other words, we know when we will
need cash to meet those obligations. We also should know when
we are to have cash available, based on when we have goats to
sell. Almost certainly, the two flows of cash (the inflows and
the outflows) will not match. However, if we estimate them fairly
accurately, we can plan for the deficit periods. That is what
the banker is looking for. He does not like surprises.
A cash flow statement, just like the
budget, is also a look into the future. It takes the individual
income and expense items and separates them by period, usually
by month, but sometimes by quarter. The cash flow statement need
not be complicated, and is usually fairly subjective, a fourdollar
word for an "educated guess". Such estimating is not
particularly risky if we go back and adjust our numbers as we
proceed through the year. After all, only a fool expects to guess
perfectly on everything. It's a matter of asking "How am
I doing?" every so often.
Looking first at income, when will the
kids be ready for market? How many and what will they be worth?
The sale of breeding stock can also be planned. When will they
likely be sold? Cull nannies probably will be disposed of after
weaning time. These items can be totalled for each month.
Moving on to expenses, and beginning
with the first item on the list of budget expenditures, when will
concentrates by fed? Probably in the heart of the winter, or when
lactating nannies need some help. What about hay? During much
of the cold weather. The same reasoning can be applied to animal
health, fertilizer, and labor. Utilities (including telephone)
might reasonably be divided equally throughout the year.
Once we know what the expected income
and expense totals are on a monthly basis, we can use this information
to keep track of our budget, item by item. As we proceed through
the year,, we may find that our original budget needs adjustment.
At other times, we receive a warning that we are letting certain
items get out of hand.
Table 2 presents a division of one revenue
and four expense categories for the first four months of the year,
taken from the budget values shown in Table 1. Note that the percentages
allocated for each particular month are also given, so that the
cash flow entries can be checked against the totals shown in the
|Table 2. Cash Flow Statement (Partial), Meat Goats, 50 Head Unit
|Sale of market animal
Once the monthly figures for each revenue
and expense item have been estimated, a cash flow summary can
prepared. Table 3 shows the components of a cash flow summary.
|Table 3. Cash Flow Summary
|Beginning Cash Balance
|Add in revenues
Some producers make the cash flow summary
even more comprehensive by including receipts from additional
loans and payments back to the lender.
The cash flow summary helps us deal
with our lender. By checking the surplus/deficit line, we can
estimate when we will need additional money, or when we are likely
to have some to pay back. Just imagine, you go in to your lender
and say, "Sam, I've been looking at my numbers and it looks
like I'm going to be short about $200 in April, but I'll be ahead
around $500 by June. A banker loves this sort of thing. While
he's gasping for air, you might suggest he take you out to lunch!
A final word about cash flow. This may
seem tedious. If it doesn't, perhaps you had better check in with
your analyst. But shovelling manure is also tedious, and digging
post holes, and balancing your checkbook. The question is, where
is the biggest payoff? The returns to time spent on financial
analysis may be 20 (or 50) times as great as time spent on production
items. Use money you save to make life a little easier. And let
someone else shovel part of the manure.
Is it the Best Place to Put Time
Say the goats budget out to be profitable.
Say the cash flow problems appear to be surmountable. But there
are other candidates for one's time and money. Some of them are
undoubtedly better in terms of profit and cash flow. So there
should be rewards beyond the financial for the goat owner.
True, the babies are cute, but your
billy in a neighbor's vegetable garden will not provoke a lot
of laughs. When someone mentions goats, people tend to snicker.
Others say goats carry an offensive odor. And there are those
who, for whatever reason, cannot stand the thought of consuming
goat meat. Goats get out. Goats get sick. Goats get killed.
Women fare better than men in the goat
business. Perhaps they are more compassionate. They probably pay
better attention to detail. They may tolerate menial tasks better.
But the successful goat producer thinks his animals are cute
most of the time. He probably even thinks they smell good
most of the time. If there isn't something there for you, the
goat business is just another form of drudgery. The point? What
are the rewards, other than profits, that make a goat enterprise
Environmentalism, with all the fog that
surrounds it, is here to stay. Goats work exceptionally well with
cattle, although it requires a change in management. Goats keep
the weeds down, not to mention briars, rose bushes, and honeysuckle.
That reduces pesticide costs. They scatter manure very well, which
can reduce the cost and environmental damage associated with inorganic
The environmental movement encourages
a more extensive, "backtonature" agriculture.
Sound arguments link such agriculture with financial sustainability,
for at least some farm families and some farmsteads. Goats are
compatible with small scale agriculture, and with farmers of limited
resources, be they expressed as financing, restricted land area,
or modest technical training.
Goats are uniquely adapted to make a
living from the resources already in place on the farm. Goats
help keep a place neat. They are cleaner than most grazing animals.
Given adequate containment and protection, they are relatively
pleasant to be around.
Most producers in northern climates
produce meat goats at a loss for at least two reasons. One, production
practices are patterned after the dairy goat enterprise, and per
head revenues from meat goats will not approach those of dairy
goats. Two, some of those folks have only two seasons July
. . . and winter. The meat goat is by nature a browser, and there
is not that much yearround feed available, except that it
be supplemented, usually out of a sack. Our operating costs can
be much less than theirs.
The point to be made concerns whether
or not to invest in the goat business. Once the profitability
and cash flow issues are resolved, other considerations take precedent.
Is it the way you want to spend the rest of your life? Goats may
keep you out of the rest home, or they could put you in there