1. Cash Flow Budgeting: Chap.13
What is a cash flow budget used for?
What items are included in cash inflows and cash outflows?
What adjustments can be made to project a positive cash balance?

2. Uses for a Cash Flow Budget
Project credit requirements and repayment plan
Plan marketing patterns
Communicate these plans to a lender
Useful for monitoring actual cash flows throughout the year
Cash flow budgets do not project profits or net farm income.

3. Cash Inflows Sales and other cash income New loans received
Sales of capital assets
Nonfarm income
Beginning cash on hand

4. Cash Outflows Cash expenses Principal payments
Purchase of capital assets
Nonfarm expenses
Ending cash on hand

5. Do not include: Depreciation Opportunity costs
Any other noncash income or expenses

6. Cash Flow Budgets Can Be:
Annual
Quarterly
Bi-monthly
Monthly
Estimate cash inflows and outflows for the entire year first.
Distribute the annual totals among the periods within the year.

7. Allocate Annual Expenses
Whole
Year
Jan-
March
April-
June
July-
Sept.
Oct.-
Dec
Seed
$25,000
$6,000
$12,000
$7,000
Fuel
$28,000
$2,000
$10,000
$4,000

8. Budget within the year Jan-Feb Mar-Apr May-June July-Aug Sep-Oct
Nov-Dec
Cash
Inflows
- Cash Outflows
= Cash
Balance

9. Objective: Budget for a positive cash balance at the end of each period
May plan for a minimum balance, such as $1,000
Balance the budget for the whole year first, then for each period within the year.

10. Annual Adjustments to Cash Flow
Sell more crops and livestock at end (but less will be available next year)
Use loan funds to purchase capital assets
Postpone purchase of capital assets
Sell capital assets

11. Annual Adjustments to Cash Flow
Postpone repayment of short-term loans (but more will be due next year)
Lengthen the repayment period for term loans
Reduce nonfarm expenditures
Increase nonfarm income

12. Seasonal Adjustments Shift timing of crop and livestock sales
Shift timing of cash expenses (including loan payment dates)
Use short-term credit

13. Profit and Cash Flow
In the short run we want to have enough cash to meet all obligations on time.
In the long run we want to earn enough to pay all costs including a return to our own labor and investment.

14. Comparison of Whole Farm Budget and Cash Flow Budget
Gross Revenue
Sales of grain, livestock, products
Other income (USDA payments, etc.)
Cash Flow
Cash Inflows
Sales of grain, livestock, products
Other income (USDA payments, etc.)
New loans received
Sales of capital assets
Nonfarm income
Cash on hand

15. Comparison of Whole Farm Budget and Cash Flow Budget
Costs
Cash variable costs
Cash fixed costs
Depreciation
= Net Farm Income
- Opportunity costs
= Profit & Ret. to Mgt.
Cash Flow
Cash Outflows
Cash variable costs
Cash fixed costs
Loan repayments
Capital asset purchases
Nonfarm expenses
= Net cash flow