Introduction to Enterprises
Enterprises are a unique and powerful tool in Ambrook to be able to understand the profitability of segments of a business. They allow users to capture a different dimension than the income and expense categories to help understand where their business is doing well, and where they might need to take a closer look.
Picking your enterprises first requires thinking through the questions you hope to answer about your business. A few common questions include:
Which products or services are making money for me? Where am I most profitable?
Which locations are most profitable? What are my biggest expenses at each location I operate?
Where are there opportunities to outsource or vertically integrate my business? Should I produce the raw materials or inputs from my products myself, or buy it from someone else?
Enterprises allow you to associate revenues and expenses with a particular line of business so you can compare your cost and profit centers without being distracted by overhead costs. You can maintain an Overheads enterprise for any costs that you would still incur if you decided to stop doing any one of your enterprises, like your internet or your truck.
Guide to choosing your enterprises
Going through the below exercise will help you decide the enterprises that make sense for you.
Write down all the products or services that you sell. This might include details of where or how you sell them - such as the location used to produce it, or the sales channel through which you sell it.
Consider the granularity that’s most important. In some cases, you can get extremely detailed about the products - for example, if you sell vegetables, you could look at every vegetable you sell. Consider the decisions you make at the end of the year, and which level of detail will help you make that decision. The right enterprise might focus on how you sell it (at a farmers market, or through a wholesale distributor) rather than the specific products.
Identify the sources of revenue for each. When you sell your product, are you able to figure out which income comes from each product? To enable enterprise analysis, you will need to break out your income by each enterprise. We recommend starting simple - you can always add more detail later as you get a handle on what information you want to see.
Identify your costs. Are there costs you share between your different enterprises? You’ll want to consider how you would split costs that may be shared between two or more enterprises. For example, if you pay for irrigation, you might use more irrigation for certain crops. You can either approximate this (based on the number of acres) or if you have a bill that splits out these amounts, you can use this information to split the expense.
Once you’ve identified these parameters, the next step is deciding what to keep. A few questions you should consider:
How much time will splitting out income and expenses take? If you have a good way to split out both income and expenses by enterprises, then the enterprises are a no brainer. Overcomplicating your tracking actually puts it at risk because the more complex a system is, the harder it is to maintain. A simple system that gives you enough insights to check your gut and move toward directional improvements is often what’s best.
What is the most important information you need to make decisions about your business? It’s helpful to think about what you want to see at the end of the year. Below is a video of the Analytics tab in Ambrook that shows an example of enterprises for a diversified vegetable operation. Think about what you want to see on this page that will help you make the right decisions on your operation when you’re reviewing at the end of the year.
Our Advice
In addition to these questions, there are a few principles we try to follow when working with operators to determine the right enterprises for them.
Done is better than perfect. You don’t always need exact precision to make good decisions - directional improvements powered by educated guesses can get you most of the way there. A 10% margin of error is to be expected and shouldn’t prevent you from pushing forward with an adjustment to your operation.
Keep it simple. We’ve found it’s easiest to manage a system that doesn’t attempt to overcomplicate things. Start simple, and layer on more detail as you get into a good habit with your bookkeeping. You’ll start gaining incremental insights that will encourage you to keep going. Ranching for Profit advocates the “KISS method” in their blog - Keep it simple, stupid.
Examples
Here are some example enterprises from real Ambrook operations:
Ranch
Cow/Calf
Stockers
Custom Grazing
Direct-to-Consumer
Overheads
Diversified Vegetable Operation
Education
Vegetables
Farm Store
Overheads
Construction / Custom Services
Fencing
Septic
Property Management
Landscaping
Construction
Overheads
Detailed Example: Decision-making process
The customer: Bill operates a ranch that has a cow/calf operation and occasionally buys stockers. He inherited some of the cows, so there are some Angus and some mixed breeds. He also raises a friend’s cows when it’s not too dry. He sells his cattle into the supply chain, or he might sell direct-to-consumer when it makes sense for him. He’s most interested in understanding how to make better decisions on when to keep his breeding heifers or to sell them, and which markets (direct-to-consumer or through the supply chain) make sense.
Products and services: Bill came up with a detailed list of the products and services he offers.
Cow/Calf - Angus
Cow/Calf - Mixed
Stockers
Custom grazing
Direct-to-Consumer Beef (Angus and Mixed)
Supply Chain Beef (Angus and Mixed)
Considerations: Bill cares most about understanding the difference between the markets he sells into, and how he sells his products. Since he already owns the cattle he inherited, knowing the difference between the breeds won’t impact his decisions year to year.
Revenue: Bill knows that he creates invoices for his direct-to-consumer sales, and gets sales receipts for cows that he brings to the auction. He also sends invoices for his custom grazing operation, so he knows he can separate out the revenue for these businesses.
Expenses: Bill doesn’t always know upfront which cows he’ll sell direct-to-consumer, so tracking the expenses for those cows as he goes doesn’t make sense. However, he can “sell” his cows to his direct-to-consumer enterprise when he decides to sell them through this channel. In Ambrook, this can be represented by an internal transfer, where the cow/calf enterprise would receive the income for the raised cow, and the Direct-to-Consumer enterprise would have an expense for purchasing the cattle at the market price.
Bills’ final enterprises include a simplified list of his products and services that are both simple to track but give him the insights he was looking for about his business.
Cow/Calf
Stockers
Custom Grazing
Direct-to-Consumer
Overheads