Cash Flow Management and Budgeting for Beef Production

1. Cash Flow Management and Budgeting for Beef Production An Sci 426

2. 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

3. Factors That Affect Liquidity • Low profits • Business growth • Investment comes first, added sales later • Technology may not work at first • Increasing inventories decreases sales • Debt Structure • Length of repayment term • Use of balloon payments

4. Factors Affecting Liquidity • Carryover operating debt from past years • High cash land costs • Mortgage payments, cash rent, property taxes • High nonfarm expenditures • Family living, income taxes, nonfarm investments • Nonfarm income

5. 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

6. Financial Contingency Plan • Liquidate fixed assets: breeding stock, equipment, land • Reduce nonfarm expenses or increase nonfarm income • Borrow from family members • Bankruptcy

7. Cash Flow Budget • A recorded projection of the amount and timing of all cash inflows and outflows in each accounting period

8. 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.

9. Cash Inflows • Beginning cash on hand • Sales and other cash income • New loans received • Sales of capital assets • Nonfarm income

10. Cash Outflows • Cash expenses • Principal payments • Purchase of capital assets • Nonfarm expenses • Ending cash on hand

11. Do not include: • Depreciation • Opportunity costs • Unpaid labor • Return on equity • Any other noncash income or expenses

12. Cash Flow Budgets Can Be: • Annual • Quarterly • Bi-monthly • Monthly • Estimate cash inflows and outflows for the entire year first. • Distribute the annual totals among the periods within the year.

13. Allocate Annual Income

14. Allocate Annual Expenses

15. Budget within the year

16. 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.

17. 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

18. 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

19. Seasonal Adjustments • Shift timing of crop and livestock sales • Shift timing of cash expenses (including loan payment dates) • Use short-term credit

20. www.extension.iastate.edu/agdm • Decision Tools • Information Files • Newsletter Articles • File C3-15, “Cash Flow Budget”

23. 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

24. Making the Cash --- Flow

25. Happy Budgeting!