Farm Management
Chapter 13
Cash Flow Budgeting
Chapter Outline
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•
•
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Features of a Cash Flow Budget
Constructing a Cash Flow Budget
Uses for a Cash Flow Budget
Monitoring Actual Cash Flows
Investment Analysis Using a Cash Flow
Budget
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Chapter Objectives
1.
2.
3.
4.
5.
6.
To identify cash flow budgeting as a tool for
decision making and analysis
To understand the structure and components
of a cash flow budget
To illustrate the procedure for completing a
cash flow budget
To describe similarities and differences
between a cash flow budget and an income
statement
To discuss the uses of a cash flow budget
To show the use of cash flow budgeting in
investment analysis
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Features of a Cash Flow Budget
A cash flow budget is a summary of the
projected cash inflows and outflows for
a business over a period of time. The time
period is usually a future accounting period
and is divided into quarters or months. As
a forward planning tool, its primary purpose
is to estimate the amount and timing of
future borrowing needs and the ability of
the business to repay loans.
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Figure 13-1
Illustration of cash flows
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Actual versus Estimated Cash Flows
A cash flow budget contains estimates
of cash flows for a future time period.
It is possible to record and organize
actual cash flows for some past time
period into a Statement of Cash Flows.
The actual values can be compared
against the budgeted values. Also, this
statement can provide insight into the
financial structure of the business.
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Table 13-1
Simplified Cash Flow Budget
1 Beginning cash balance
Time Period 1
Time Period 2
$1,000
$500
2,000
0
0
3,000
12,000
5,000
500
18,000
3,500
10,000
500
14,000
-11,000
1,800
0
200
2,000
16,000
11,500
0
0
11,700
500
4,300
$11,500
$0
Cash inflow:
2
3
4
5
Farm product sales
Capital sales
Miscellaneous cash income
Total cash inflow
Cash outflow:
6
7
8
9
10
Farm operating expenses
Capital purchases
Miscellaneous expenses
Total cash outflow
Cash balance
(line 5 - line 9)
11 Borrowed funds needed
12 Loan repayments
(principal and interest)
13 Ending cash balance
(line 10 + line 11 - line 12)
14 Debt outstanding
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Constructing a Cash Flow Budget
1. Develop a whole-farm plan
2. Take inventory
3. Estimate crop production and livestock
feed requirements
4. Estimate cash receipts from livestock
5. Estimate cash crop sales
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Constructing a Cash Flow Budget
(continued)
6. Estimate other cash income
7. Estimate cash farm operating expenses
8. Estimate personal and nonfarm cash
expenses
9. Estimate purchases and sales of capital
assets
10. Find and record the scheduled principal
and interest payments on existing debts
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Table 13-2
Form for a Cash Flow Budget
Name: I. M. Farmer
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1 Beginning cash balance
Operating receipts:
2 Grain and feed
3 Feeder livestock
4 Livestock products
5 Other
6
Capital receipts:
7 Breeding livestock
8 Machinery and equipment
9
Nonfarm income:
10 Wages and salary
11 Investments
12
13 Total cash inflow (add lines 1-12)
Operating expenses
14 Seed
15 Fertilizer and lime
16 Chemicals
17 Other crop expenses
18 Gas, oil, and lubricants
19 Hired labor
20 Machine hire
21 Feed and grain
22 Feeder livestock
23 Livestock expenses
24 Repairs - machinery
25 Repairs - buildings
26 Cash rent
27 Supplies
28 Property taxes
29 Insurance
30 Utilities
31 Auto and pickup (farm share)
32 Other farm expenses
33
34
35 Total cash operating expenses
Total
Jan
Feb
March
10
Table 13-2 (continued)
Form for a Cash Flow Budget
Name: I. M. Farmer
Total
Jan
Feb
March
Capital Expenditures
36 Machinery and equipment
37 Breeding livestock
38
Other expenditures:
39 Family living expenses
40 Income tax and social security
41 Other nonfarm expenses
42
43
Scheduled debt payments
44 Current debt - principal
45 Current debt - interest
46 Noncurrent debt - principal
47 Noncurrent debt - interest
48 Total cash outflow
(add lines 35-47)
49 Cash available (line 13 - line 48)
New borrowing:
50 Current
51 Noncurrent
52 Total new borrowing
Payments on new current debt
53 Principal
54 Interest
55 Total debt payment
(line 53 + line 54)
56 Ending cash balance
(lines 49 + 52 - 55)
Summary of debt outstanding
57 Current
58 Noncurrent
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59 Total debt Outstanding
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Table 13-3
Example of a Cash Flow Budget
Name: I. M. Farmer
1 Beginning cash balance
Operating receipts:
2 Grain and feed
3 Feeder livestock
4 Livestock products
5 Other
6
Capital receipts:
7 Breeding livestock
8 Machinery and equipment
9
Nonfarm income:
10 Wages and salary
11 Investments
12
Total cash inflow
13
(add lines 1-12)
Operating expenses:
14 Seed
15 Fertilizer and lime
16 Chemicals
17 Other crop expenses
18 Gas, oil, lubricants
19 Hired labor
20 Machine hire
21 Feed and grain
22 Feeder livestock
23 Livestock expenses
24 Repairs-machinery
25 Repairs-buildings
26 Cash rent
27 Supplies
28 Property taxes
29 Insurance
30 Utilities
31 Auto and pickup (farm share)
32 Other farm expenses
33
34
Cash Flow Budget
Total
2,500
Jan
2,500
Feb
18,650
160,000
88,000
20,000
20,000
March
15,250
April
500
May
450
June
450
July
500
Aug
450
Sept
513
Oct
663
Nov
26,176
60,000
60,000
Dec
37,376
88,000
5,400
5,400
3,800
3,800
7,200
200
600
200
600
600
600
600
600
600
600
600
600
600
600
267,100
23,300
39,250
15,850
1,100
1,050
1,050
1,100
92,850
6,513
61,263
86,776
37,976
5,800
8,000
4,000
10,000
5,800
26,000
4,000
2,600
3,000
6,000
800
4,000
36,000
7,500
3,600
1,800
1,000
3,400
700
600
1,200
500
8,000
2,600
500
800
1,000
500
500
500
1,500
1,500
1,500
800
500
500
1,500
250
500
600
1,500
500
400
800
1,000
1,000
400
800
800
36,000
1,000
500
500
250
500
1,800
700
50
100
100
50
100
1,000
500
250
250
1,700
50
100
1,000
1,700
50
100
100
50
100
50
100
100
50
100
50
100
100
50
100
50
100
100
50
100
50
100
12
Table 13-3 (continued)
Example of a Cash Flow Budget
35 Total cash operating expenses
Capital expenditures:
36 Machinery and equipment
37 Breeding livestock
38
Other expenditures:
39 Family living expenses
40 Income tax and social security
41 Other nonfarm expenses
42
43
Scheduled debt payments:
44 Current debt - principal
45 Current debt - interest
46 Noncurrent debt - principal
47 Noncurrent debt - interest
Total cash outflow
48
(add lines 35-47)
49 Cash available (line 13-line48)
New borrowing:
50 Current
51 Noncurrent
52 Total new borrowing
Payments on new current debt
53
Principal
54
Interest
Total debt payments
55
(line 53 + line 54)
Ending cash balance
(lines 49 + 52 - 55)
Summary of debt outstanding
Current (beginning of $0)
Noncurrent (beg. of $340,000)
Total debt outstanding
Total
108,500
Jan
1,650
Feb
3,000
60,000
1,000
36,000
8,000
April
14,050
May
4,500
June
2,950
July
650
Aug
1,800
Sept
2,850
Oct
6,050
Nov
46,400
Dec
3,450
3,000
3,000
3,000
3,000
3,000
3,000
5,850
663
9,050
52,213
49,400
37,376
6,450
31,526
37,376
31,526
60,000
1,000
3,000
0
0
32,000
27,200
272,700
(5600)
March
21,150
3,000
3,000
8,000
3,000
3,000
6,000
12,000
4,650
18,650
20,000
3,200
24,000 92,150 17,050
15,250 (76,300) (15,950)
92,700
40,000
132,700
3,000
36,800
40,000
76,800
7,500 30,150
(6,450) (29,100)
6,000
12,000
3,650
(2,550)
16,400
6,900
29,600
3,000
16,400
6,900
29,600
3,000
22,800
70,050
92,700
2,874
67,400
2,137
25,300
737
95,574
69,537
26,037
31,526
18,650
15,250
500
450
450
500
450
513
663
26,176
0
0
0 36,800 53,200 60,100 89,700 92,700 25,300 25,300
0
0
0
340,000 340,000 334,000 374,000 374,000 374,000 354,000 354,000 348,000 348,000 348,000 348,000 348,000
340,000 340,000 334,000 410,800 427,200 434,100 443,700 446,700 373,300 373,300 348,000 348,000 348,000
13
Calculating Interest Due
Principal
March
borrowing
April
borrowing
May
borrowing
June
borrowing
Total
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Interest
$36,800 x 9% x 5/12 of a year = $1,380
$16,400 x 9% x 4/12 of a year =
492
$6,900 x 9% x 3/12 of a year =
155
$7,300 x 9% x 2/12 of a year =
110
$67,400
$2,137
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Uses for a Cash Flow Budget
1. Plan borrowing and debt repayment
2. Suggest ways to minimize borrowing
3. Combine business and personal financial
affairs into one complete plan
4. Help establish realistic line of credit
5. Plan purchases to obtain discounts
6. Aid tax planning
7. Find imbalances between current and
noncurrent debt
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Monitoring Actual Cash Flows
A cash flow budget can be used for
monitoring and control. The budgeted
amounts can be compared to what
actually transpires.
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Table 13-4
A Form for Monitoring Cash Flows
Name___________________
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1 Beginning cash balance
Operating receipts:
2 Grain and feed
3 Feeder livestock
4 Livestock products
5 Other
6
Capital receipts:
7 Breeding livestock
8 Machinery and equipment
9
Nonfarm income:
10 Wages and salary
11
Investments
12
13 Total cash inflow (add lines 1-12)
Operating expenses
14 Seed
15 Fertilizer and lime
16 Chemicals
17 Other crop expenses
18 Gas, oil, and lubricants
19 Hired labor
20 Machine hire
21 Feed and grain
22 Feeder livestock
23 Livestock expenses
24 Repairs - machinery
25 Repairs - buildings
26 Cash rent
27 Supplies
28 Property taxes
29 Insurance
30 Utilities
31 Auto and pickup (farm share)
32 Other farm expenses
33
34
35 Total cash operating expenses
Year ____________
Annual
Budget
Actual
Total
to Date
to Date
17
Investment Analysis
Using a Cash Flow Budget
Will a new investment generate
enough cash income to meet its
additional cash requirements? In
other words, is the investment
financially feasible?
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Table 13-5
Cash Flow Analysis for an Irrigation Investment
Cash inflow:
Increase in crop income
Cash Outflow
Additional crop expenses
Irrigation expenses
Principal payments
Interest payments
Total cash outflow
Net cash flow
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1
2
Year
3
$16,800
$16,800
$16,800
$16,800
$16,800
3,600
3,000
14,000
5,040
3,600
3,000
14,000
3,360
3,600
3,000
14,000
1,680
3,600
3,000
0
0
3,600
3,000
0
0
25,640
23,960
22,280
6,600
6,600
-8,840
-7,160
-5,480
10,200
10,200
4
5
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Summary
A cash flow budget is a summary of
all cash inflows and outflows for a given
future time period. No noncash entries
are included. This budget can provide
an estimate of borrowing needs and
repayment capacity. It can also be
used to analyze the feasibility of
investment alternatives.
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