But, they will have a significant surplus of cash in the 2 nd quarter when they sell their cattle. B&B has completed their cash flow budget and thus they know that barring significant changes in the shocks of life they will have need for short-term borrowing needs in the 1 st, 3 rd and 4 th quarters. They also will have knowledge of the impact on cash and knowing that helps in shopping and negotiations.ī&B Grain and Livestock Company has a meeting with their lender next week regarding borrowing needs for the year ahead. The cash flow budget enables them to plan ahead for the best time to trade and also communicate far in advance with their lender what their borrowing needs will be. S&S Grain knows they have to replace their combine this next year. S&S Grain LLC is another example of the value of planning resulting from the cash flow budgeting process. Just the process of completing the cash flow budget led them to market planning as well. It also gave them a benchmark to watch as the year unfolds. It caused them to consider and pull the trigger on some marketing actions to secure the prices available today for a portion of their expected production. No one knows what could happen to prices especially a year out, but J&J saw several indicators that the risk of price movement looked to be towards lower prices. It forced them to consult with market advisors, assess where in the cycle the industry was at, look at futures and consider the current supply and demand situation. To complete their cash flow, J&J Dairy had to estimate what price they would receive for their milk.

J&J Dairy Farms is an example of the value of being “forced” to plan operations in the next year. Test your knowledge of cash flow budgeting True or False: My cash flow budget is a positive $75,000, which means if all goes according to plan, I will have a profitable year. The enterprise budget includes depreciation and opportunity costs, both of which are non-cash items not found on the cash flow budget. The cash flow budget is also not a substitute for the enterprise budget. Positive cash flow does not mean profitability or visa versa. The accrual income statement will quickly identify this situation as unprofitable, but the cash flow budget will see a positive. However, the cash flow budget does include principal payments, cash payments for capital assets and new loan proceeds that the income statement does not include.Ī farm manager can cash flow very nicely for a while by just selling a few cows, pieces of machinery, acres of land or just allowing accounts payable to continue to build. The cash flow budget does not include non-cash items like depreciation, inventory changes and changes in accounts receivable/payable. The cash flow budget is not the same as an income statement, especially an accrual income statement, and in-fact they can be quite different. While it can be negative on a spreadsheet, in real life it must be at least zero even if that means bills and debt service are not getting paid. “Net Cash Flow” must be positive or at least zero (breakeven). – Non-farm outflows of cash including family living + Non-farm sources of income which should be included if used to pay farm bills Share your feedback on this tool by contacting our Extension team at makes up a cash flow budget?Ī cash flow budget consists of cash coming in (+) or leaving (-) the business. During times of low profitability, cash flow is a survival strategy.Ĭompleting the cash flow budget requires that the manager plan ahead, know and/or estimate what they will raise, input needs, input costs, output prices, capital asset replacement, sales or purchases, and other factors that could either provide or take cash from the business.Provides a means of communicating the amount and timing of borrowing and investment needs with the lender.Forces the planning function of management.The cash flow budget provides three primary values for the farm manager. The keyword is “cash.” If cash is not entering or leaving one’s pocket, then it does not go on the cash flow budget. The cash flow budget is a plan of how cash will be coming into the operation (cash inflows) and leaving the operation (cash outflows). The planning function of management is one of the most important for the farm manager and completing a cash flow budget is an excellent tool for doing so. “ Plan for profits and then work your plan.” That phrase best describes the value of cash flow budgeting.

Monthly family cashflow spreadsheet