Cash Flow Budget Components

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Cash Flow Budget Components
Farm Business Planning – Lesson 2
A Project Funded by:
USDA BFRDP
Grant #10506276
Development Partners Include:
Mississippi State University
National Association of Agricultural
Educators
Oklahoma State University
• Agricultural Economics Department
• Oklahoma Cooperative Extension Service
Why a Cash Flow Budget?
• Cash flow budgets monitor project revenues
versus expenses in the short term
• Cash flow imbalances can be justified in the
long term by normal operation of a business
▫ example – buying growing supplies in the first few
months of a crop before ever selling any product
• Cash flow budgets are made monthly, quarterly
and annually
How Cash Flow Budgets Help
• Cash budgets help to manage a project by
determining what cash resources will be needed
and when in order to keep a project running
▫ Example – negative cash flow during feeding out
of steers before sale. Need to borrow money from
the bank or have other reserves available to feed
animals until they are sold.
Cash Flow Budgeting
• Cash flow budgeting is concerned with
FEASIBILITY of an enterprise
▫ Is sufficient cash generated to meet obligations
generated by the project?
• Long-term investments often have a negative
cash flow, e.g., land purchases, until debt is paid
▫ Subsidize cash flow with other enterprises, e.g.,
off-farm income
Cash Sources
• Focus is on CASH
• Include ALL source of cash and ALL uses of cash
• Sources of cash:
▫ Full sale price of land, buildings, machinery,
breeding stock, feeder livestock, crops
▫ Government program payments, crop insurance
▫ Starting cash balance
▫ Off-farm income
▫ Gifts & inheritances
▫ Proceeds from planned borrowing
Cash Uses
• Uses of cash
▫ Cash expenses
▫ Full purchase price of land, buildings, equipment,
breeding stock
▫ Principal payments
▫ Interest payments
▫ Family living expenses
Cash Flow Analysis
• Can a project have positive cash flow but not be
profitable?
▫ Yes!
▫ Depreciation is NOT a cash flow but is an expense
▫ So profit can be negative even though project cash
flows!
• Can a project be profitable but not have positive
cash flow?
▫ Yes!
▫ Principal payments are NOT an expense but are a cash
demand
▫ So cash flow can be negative while profit > 0!
Special Thanks to:
• USDA BFRDP Grant Program
• Oklahoma State University
▫ Eric A. DeVuyst, Department of Agricultural
Economics
• National Association of Agricultural Educators
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