Cash Flow Management and
Budgeting for Beef Production
An Sci 426
Cash Flow Management



Having enough cash on hand to
meet all cash commitments in a
timely manner
Without disrupting normal business
activities
LIQUIDITY: adequate cash flow
Factors That Affect Liquidity
 Low
profits
 Business growth
Investment comes first, added sales
later
 Technology may not work at first
 Increasing inventories decreases
sales

 Debt
Structure
Length of repayment term
 Use of balloon payments

Factors Affecting Liquidity
 Carryover
operating debt from
past years
 High cash land costs

Mortgage payments, cash rent,
property taxes
 High

nonfarm expenditures
Family living, income taxes, nonfarm
investments
 Nonfarm
income
Financial Contingency Plan






Cash savings
Credit reserve: short term loans
Credit reserve: refinance land debt
Stretch out repayment on loans
Use balloon payments
Liquidate current assets: grain and
livestock
Financial Contingency Plan




Liquidate fixed assets: breeding
stock, equipment, land
Reduce nonfarm expenses or
increase nonfarm income
Borrow from family members
Bankruptcy
Cash Flow Budget

A recorded projection of the
amount and timing of all cash
inflows and outflows in each
accounting period
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.
Cash Inflows
1.
2.
3.
4.
5.
Beginning cash on hand
Sales and other cash
income
New loans received
Sales of capital assets
Nonfarm income
Cash Outflows
1.
2.
3.
4.
5.
Cash expenses
Principal payments
Purchase of capital assets
Nonfarm expenses
Ending cash on hand
Do not include:
 Depreciation
 Opportunity
costs
 Unpaid
labor
 Return on equity
 Any
other noncash
income or expenses
Cash Flow Budgets Can Be:




1.
2.
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.
Allocate Annual Income
Whole
Year
JanMarch
AprilJune
JulySept.
Oct.Dec
Beans
10,000 bu $20,000
@$7.00 =
$70,000
$25,000
$0
$35,000
Calves
75 head
$0
@ $700 =
$52,500
$0
$0
$52,500
Allocate Annual Expenses
Whole
Year
JanMarch
AprilJune
JulySept.
Oct.Dec
Seed
$25,000
$6,000
$12,000
$0
$7,000
Fuel
$28,000
$2,000
$10,000
$4,000
$12,000
Living
$30,000
$7,500
$7,500
$7,500
$7,500
Budget within the year
JanFeb
Cash
Inflows
- Cash
Outflows
= Cash
Balance
MarApr
MayJune
JulyAug
SepOct
NovDec
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.
Annual Adjustments to Cash Flow

Use loan funds to purchase machinery
and equipment instead of all cash

Postpone purchase of capital assets

Sell capital assets
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
Seasonal Adjustments
 Shift
timing of crop and
livestock sales
 Shift timing of cash expenses
(including loan payment
dates)
 Use short-term credit
www.extension.iastate.edu/agdm
 Decision Tools
 Information Files
 Newsletter Articles
 File C3-15, “Cash Flow Budget”
Cash Flow Budget
Ag Decision Maker -- Iowa State University Extension
Place the cursor over cells with red triangles to read comments.
Enter your input values in shaded cells.
Name:
Frank Case
CASH INFLOWS
Operating
Livestock income
Sales of crops
Other crop income
USDA payments
Custom hire income
Farm rents, interest
Other
Year:
2006
0
39,720
0
1,650
0
0
0
0
33,600
0
1,650
0
0
1,147
May
June
18,937
18,000
0
1,650
0
0
1,147
5,000
0
0
5,000
0
0
0
Financing
Total new short-term loans to receive
New term loans to receive
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Nonfarm Income
0
0
0
0
0
0
0
265,284
41,370
36,397
44,734
2,797
2,797
137,189
Sales of Capital Assets
Total Cash Inflows
Total for
Year
90,176
155,620
0
9,900
0
0
4,588
January
February
March
April
July
August
0
0
0
1,650
0
0
1,147
September
October
0
0
0
1,650
0
0
1,147
November
December
71,239
64,300
0
1,650
0
0
0
CASH OUTFLOWS
Operating
Seed
Fertilizer and lime
Pesticides
Crop insurance
Drying fuel
Custom hire or machine rental
Other cash costs per acre
Total for
Year
16,885
42,030
13,750
3,300
0
14,300
0
January
February
0
0
0
0
0
0
0
March
April
8,443
16,812
0
3,300
0
0
0
May
June
8,443
16,812
5,500
0
0
0
0
July
August
0
8,406
5,500
0
0
0
0
September
October
0
0
2,750
0
0
0
0
November
December
0
0
0
0
0
14,300
0
Purchased crops
Purchased livestock
Purchased feed
Health and veterinary
Marketing
Other cash costs per head
0
0
1,503
4,175
2,205
0
0
0
251
0
0
0
0
0
251
1,044
0
0
0
0
251
1,044
463
0
0
0
251
0
0
0
0
0
251
1,044
0
0
0
0
251
1,044
1,742
0
Real estate taxes
Cash rent
Hired labor
Repairs and upkeep
Fuel and lubrication
Other fixed expenses
Equipment lease payments
9,500
30,000
1,500
12,000
17,258
0
0
0
0
0
1,200
2,876
0
0
4,750
15,000
500
2,400
2,876
0
0
0
0
500
2,400
2,876
0
0
0
0
500
2,400
2,876
0
0
0
0
0
2,400
2,876
0
0
4,750
15,000
0
1,200
2,876
0
0
Purchases of Capital Assets
12,000
12,000
0
0
0
0
0
Financing
Accounts payable
Short term notes due
Term loan payments
0
0
63,361
0
0
46,214
0
0
17,147
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
243,767
62,541
72,522
38,288
19,933
9,321
41,163
Nonfarm Expenditures
Family living expenses
Nonfarm investments
Total Cash Outflows
Making the Cash Flow
 Look
for periods with negative
net cash flows
 Use operating line to fill in the
gaps
 Positive cash flow is not the
same as profits
Making the Cash --- Flow
SUMMARY
Net Cash Flow
Beginning cash balance
Interest earned on cash balance
New operating loan received
Repayment of operating loan
Interest paid on oper. loan balance
Ending cash balance
Operating Loan Balance
Beginning Balance
Ending Balance
Total for
Year
21,517
15,000
72
January
February
(21,171)
15,000
25
March
April
(36,125)
1,854
3
68,000
90,000
6,545
8,044
8,000
36,000
0
1,854
0
1,732
56,000
34,000
56,000
64,000
64,000
100,000
May
June
6,446
1,732
3
July
August
(17,136)
8,181
14
September
October
(6,524)
8,059
13
November
December
96,026
8,549
14
17,000
7,000
0
8,181
0
8,059
0
8,549
90,000
6,545
8,044
100,000
100,000
100,000
117,000
117,000
124,000
124,000
34,000
Happy Budgeting!