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?
Cash Inflows
 Sales and other cash income
 New loans received
 Sales of capital assets
 Nonfarm income
 Beginning cash on hand
Cash Outflows
 Cash expenses
 Principal payments
 Purchase of capital assets
 Nonfarm expenses
 Ending cash on hand
Do not include:
 Depreciation
 Opportunity costs
 Any other noncash income or
expense
Cash Flow Budgets Can Be:




Annual
Quarterly
Bi-monthly
Monthly
1. Estimate cash inflows and outflows for
the entire year first.
2. Distribute the annual totals among the
periods within the year.
Budget within the year
JanFeb
Cash
Inflows
- Cash
Outflows
=
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
 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
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
Comparison of Whole Farm
Budget and Cash Flow Budget
Whole Farm
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
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.
Comparison of Whole Farm
Budget and Cash Flow Budget
Whole Farm
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
Uses for a Cash Flow Budget
1. Project credit requirements
and repayment plan
2. Plan marketing patterns
3. Communicate these plans to a lender
4. Useful for monitoring actual cash flows
throughout the year
Cash flow budgets do not project
profits or net farm income.