Cash Flow Management and Budgeting for Beef Production
-
Upload
wilma-allen -
Category
Documents
-
view
39 -
download
0
description
Transcript of Cash Flow Management and Budgeting for Beef Production
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 firstIncreasing inventories decreases
sales Debt Structure
Length of repayment termUse of balloon payments
Factors Affecting Liquidity
Carryover operating debt from past years
High cash land costsMortgage 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
A recorded projection of the amount and timing of all cash inflows and outflows in each accounting period
Cash Flow Budget
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. Beginning cash on hand2. Sales and other cash
income3. New loans received4. Sales of capital assets5. Nonfarm income
Cash Outflows
1. Cash expenses2. Principal payments3. Purchase of capital assets4. Nonfarm expenses5. Ending cash on hand
Do not include:
DepreciationOpportunity costs
Unpaid laborReturn on equity
Any other noncash income or expenses
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.
Allocate Annual Income
WholeYear
Jan-March
April-June
July-Sept.
Oct.-Dec
Beans 10,000 bu@$7.00 =$70,000
$20,000 $25,000 $0 $35,000
Calves 75 head @ $700 =$52,500
$0 $0 $0 $52,500
Allocate Annual Expenses
WholeYear
Jan-March
April-June
July-Sept.
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
Jan-Feb
Mar-Apr
May-June
July-Aug
Sep-Oct
Nov-Dec
CashInflows
- Cash Outflows
= CashBalance
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/agdmDecision Tools Information FilesNewsletter ArticlesFile C3-15, “Cash Flow Budget”
Cash Flow BudgetAg Decision Maker -- Iowa State University Extension
Enter your input values in shaded cells.
Name: Year:Frank Case 2006
CASH INFLOWS Total for January March May July September November Operating Year February April June August October December Livestock income 90,176 0 0 18,937 0 0 71,239 Sales of crops 155,620 39,720 33,600 18,000 0 0 64,300 Other crop income 0 0 0 0 0 0 0 USDA payments 9,900 1,650 1,650 1,650 1,650 1,650 1,650 Custom hire income 0 0 0 0 0 0 0 Farm rents, interest 0 0 0 0 0 0 0 Other 4,588 0 1,147 1,147 1,147 1,147 0
Sales of Capital Assets 5,000 0 0 5,000 0 0 0
Financing Total new short-term loans to receive 0 0 0 0 0 0 0 New term loans to receive 0 0 0 0 0 0 0
Nonfarm Income 0 0 0 0 0 0 0
Total Cash Inflows 265,284 41,370 36,397 44,734 2,797 2,797 137,189
Place the cursor over cells with red triangles to read comments.
CASH OUTFLOWS Total for January March May July September November Operating Year February April June August October December Seed 16,885 0 8,443 8,443 0 0 0 Fertilizer and lime 42,030 0 16,812 16,812 8,406 0 0 Pesticides 13,750 0 0 5,500 5,500 2,750 0 Crop insurance 3,300 0 3,300 0 0 0 0 Drying fuel 0 0 0 0 0 0 0 Custom hire or machine rental 14,300 0 0 0 0 0 14,300 Other cash costs per acre 0 0 0 0 0 0 0
Purchased crops 0 0 0 0 0 0 0 Purchased livestock 0 0 0 0 0 0 0 Purchased feed 1,503 251 251 251 251 251 251 Health and veterinary 4,175 0 1,044 1,044 0 1,044 1,044 Marketing 2,205 0 0 463 0 0 1,742 Other cash costs per head 0 0 0 0 0 0 0
Real estate taxes 9,500 0 4,750 0 0 0 4,750 Cash rent 30,000 0 15,000 0 0 0 15,000 Hired labor 1,500 0 500 500 500 0 0 Repairs and upkeep 12,000 1,200 2,400 2,400 2,400 2,400 1,200 Fuel and lubrication 17,258 2,876 2,876 2,876 2,876 2,876 2,876 Other fixed expenses 0 0 0 0 0 0 0 Equipment lease payments 0 0 0 0 0 0 0
Purchases of Capital Assets 12,000 12,000 0 0 0 0 0
Financing Accounts payable 0 0 0 0 0 0 0 Short term notes due 0 0 0 0 0 0 0 Term loan payments 63,361 46,214 17,147 0 0 0 0
Nonfarm Expenditures Family living expenses 0 0 0 0 0 0 0 Nonfarm investments 0 0 0 0 0 0 0
Total Cash Outflows 243,767 62,541 72,522 38,288 19,933 9,321 41,163
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 Total for January March May July September NovemberYear February April June August October December
Net Cash Flow 21,517 (21,171) (36,125) 6,446 (17,136) (6,524) 96,026Beginning cash balance 15,000 15,000 1,854 1,732 8,181 8,059 8,549Interest earned on cash balance 72 25 3 3 14 13 14
New operating loan received 68,000 8,000 36,000 17,000 7,000Repayment of operating loan 90,000 90,000Interest paid on oper. loan balance 6,545 0 0 0 0 0 6,545Ending cash balance 8,044 1,854 1,732 8,181 8,059 8,549 8,044
Operating Loan Balance Beginning Balance 56,000 56,000 64,000 100,000 100,000 117,000 124,000 Ending Balance 34,000 64,000 100,000 100,000 117,000 124,000 34,000