Cash Flow Budget

Cash Flow Budget • What is it? – It is a summary of the cash inflows and outflows over a given period of time. – It is an important forward planning tool. • Purpose : – Estimate future borrowing needs – Estimates the loan repayment capacity – Schedule payments and harvests Cash Flow Budget Item Beginning Cash Receipts from catfish sold Cash Inflow Operating Cash Expenses Fingerlings Feed Gas, Fuel, and Oil Chemicals Labor Harvesting & Hauling Machine Hire Office Expenses Rent Repairs and Maintenance Utilities Other Operating Costs Total Operating Expenses Fixed Cash Expenses Taxes and Insurance Total Fixed cash Expenses Living Expenses Other Expenses Scheduled Debt Paym ents Real Estate Principal Interest (10% APR) Equipment Principal Interest (10% APR) Operating Principal Interest (10% APR) Total Cash Outflow Cash Available New Borrow ing Cash Balance Debt Outstanding Real Estate Equipment Operating Jan 15,849.00 22,600.00 38,449.00 3,830.00 380.00 1,000.00 717.39 10.00 360.00 1,310.00 190.00 360.00 8,157.39 3,000.00 265.00 2,368.75 2,018.07 15,809.21 22,639.79 22,639.79 94,485.00 84,329.00 242,168.00 Feb 22,639.79 22,770.00 45,409.79 4,790.00 470.00 1,000.00 722.79 10.00 360.00 1,310.00 390.00 360.00 9,412.79 3,000.00 665.00 2,108.23 2,018.07 17,204.08 28,205.71 28,205.71 94,485.00 83,664.00 242,168.00 Mar 28,205.71 25,420.00 53,625.71 12,415.00 5,750.00 570.00 470.00 1,730.00 806.91 10.00 360.00 1,310.00 970.00 360.00 24,751.91 3,000.00 2,018.07 29,769.98 23,855.73 23,855.73 94,485.00 83,664.00 242,168.00 Apr 23,855.73 21,810.00 45,665.73 6,710.00 660.00 1,730.00 692.32 10.00 360.00 1,310.00 1,360.00 360.00 13,192.32 4,760.00 4,760.00 3,000.00 265.00 2,364.33 2,018.07 25,599.72 20,066.02 20,066.02 94,220.00 83,664.00 242,168.00 May 20,066.02 21,650.00 41,716.02 7,670.00 750.00 1,730.00 687.24 10.00 360.00 1,310.00 1,560.00 360.00 14,437.24 3,000.00 665.00 2,097.14 2,018.07 22,217.45 19,498.57 19,498.57 94,220.00 82,999.00 242,168.00 Jun 19,498.57 21,460.00 40,958.57 8,620.00 850.00 470.00 1,950.00 681.21 150.00 10.00 360.00 1,310.00 2,340.00 360.00 17,101.21 3,000.00 2,018.07 22,119.27 18,839.30 18,839.30 94,220.00 82,999.00 242,168.00 Jul 18,839.30 21,910.00 40,749.30 10,540.00 1,040.00 1,950.00 695.49 150.00 10.00 360.00 1,310.00 2,530.00 360.00 18,945.49 3,000.00 265.00 2,357.71 2,018.07 26,586.27 14,163.03 14,163.03 93,955.00 82,999.00 242,168.00 Aug 14,163.03 23,780.00 37,943.03 11,500.00 1,130.00 620.00 1,950.00 754.85 290.00 10.00 360.00 1,310.00 2,730.00 360.00 21,014.85 3,000.00 665.00 2,080.52 2,018.07 28,778.43 9,164.60 9,164.60 93,955.00 82,334.00 242,168.00 Characteristics • Includes all cash income and cash expenses. – Cash inflows would include sale of capital items and new loans. – Cash outflows would include payment on loans and cost of new capital assets. – Includes personal cash income and expenses • Does not include any noncash income or noncash expenses. – For example, it does not include inventory changes or depreciation • Includes the timing of cash flows (monthly) Mechanic of the cash flow budget Cash Flow Coverage Ratio • Liquidity indicator • cash available ÷ cash required for interest and and principal payments of real estate and equipment loans • Excludes payments on the operating loan balance because they are flexible • Indicates the extent to which the excess cash generated by the business provides a cushion for or flexibility in covering these debt-servicing requirements •  cash flow coverage ratio =  liquidity Debt-Servicing ratio • Liquidity indicator • Cash required for interest and principal payments  by total cash inflow •  ratio =  burden of debt on cash flow =  liquidity Cash Flow Risk & Sensitivity Ratios • excess available cash  total cash available – Percent farm revenue can decline and still meet cash flows –  ratio =  risk Cash Flow Risk & Sensitivity Ratios • excess available cash  cash operating expenses – Percent farm expenses can increase and still meet cash flows –  ratio =  risk Cash Flow Risk & Sensitivity Ratios • excess available cash  total liabilities – Percent interest rates can increase and still meet cash flows –  ratio =  risk Uses for a cash flow budget • Prevent borrowing too much money too soon. • Planning of purchases, harvests and debt payments to minimize borrowing. • Does not measure profit Questions • Why is machinery depreciation not included in a cash flow budget? • Why cash inflows from nonfarm sources and outflows for family living expenses may be included on a farm cash flow budget? • Does an estimated positive net cash flow at the end of the year indicate the farm is profitable?