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Beginners question about profit
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<blockquote data-quote="Douglas" data-source="post: 692264" data-attributes="member: 8840"><p>I think all of this is way too complicated for a small time guy starting out. You have accounting profit, tax profit, and economic profit. These are measured differently and have different purposes, all of which are very valid. For me as a part time farmer I look at things a little differently. Basically I consider it a profit if my checking account has more money with the cows than without. For example the property taxes on my farm would be there regardless so I don't consider that part of my cost but I do use it to reduce my profit for tax purposes. Same with interest on the farm debt. The land payment I am making now was a decision I made 10 years ago, to by the neighbors farm, and has nothing to do with my cattle operation now. Since I will never sell no matter what, that purchase is irrelevant to what I do now. Now if I were going to purchase new land specifically to expand I would include the taxes and interest in my projections on if the new land would be profitable. Once I figure my profit, I compare it to my opportunity cost of renting the land out and see which is the best. </p><p></p><p>I know this way of looking at things will result in more people raising cattle than would otherwise and will increase the supply of cattle above where it would be if everyone looked at profit the same way. I could also understand if the guys doing this for a living have some resentment against those of us who may be losing money with a more traditional calculation but keep farming. But it is a free country thankfully, for now at least.</p></blockquote><p></p>
[QUOTE="Douglas, post: 692264, member: 8840"] I think all of this is way too complicated for a small time guy starting out. You have accounting profit, tax profit, and economic profit. These are measured differently and have different purposes, all of which are very valid. For me as a part time farmer I look at things a little differently. Basically I consider it a profit if my checking account has more money with the cows than without. For example the property taxes on my farm would be there regardless so I don’t consider that part of my cost but I do use it to reduce my profit for tax purposes. Same with interest on the farm debt. The land payment I am making now was a decision I made 10 years ago, to by the neighbors farm, and has nothing to do with my cattle operation now. Since I will never sell no matter what, that purchase is irrelevant to what I do now. Now if I were going to purchase new land specifically to expand I would include the taxes and interest in my projections on if the new land would be profitable. Once I figure my profit, I compare it to my opportunity cost of renting the land out and see which is the best. I know this way of looking at things will result in more people raising cattle than would otherwise and will increase the supply of cattle above where it would be if everyone looked at profit the same way. I could also understand if the guys doing this for a living have some resentment against those of us who may be losing money with a more traditional calculation but keep farming. But it is a free country thankfully, for now at least. [/QUOTE]
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