Cash Flow BudgetCash Flow Budget

• What is it?What is it?– It is a summary of the cash inflows and It is a summary of the cash inflows and

outflows over a given period of time.outflows over a given period of time.– It is an important forward planning tool.It is an important forward planning tool.

• Purpose :Purpose :– Estimate future borrowing needsEstimate future borrowing needs– Estimates the loan repayment capacityEstimates the loan repayment capacity– Schedule payments and harvestsSchedule payments and harvests

Item Jan Feb Mar Apr May Jun Jul AugBeginning Cash 15,849.00 22,639.79 28,205.71 23,855.73 20,066.02 19,498.57 18,839.30 14,163.03

Receipts from catf ish sold 22,600.00 22,770.00 25,420.00 21,810.00 21,650.00 21,460.00 21,910.00 23,780.00 Cash Inflow 38,449.00 45,409.79 53,625.71 45,665.73 41,716.02 40,958.57 40,749.30 37,943.03 Operating Cash Expenses

Fingerlings - - 12,415.00 - - - - - Feed 3,830.00 4,790.00 5,750.00 6,710.00 7,670.00 8,620.00 10,540.00 11,500.00 Gas, Fuel, and Oil 380.00 470.00 570.00 660.00 750.00 850.00 1,040.00 1,130.00 Chemicals - - 470.00 - - 470.00 - 620.00 Labor 1,000.00 1,000.00 1,730.00 1,730.00 1,730.00 1,950.00 1,950.00 1,950.00 Harvesting & Hauling 717.39 722.79 806.91 692.32 687.24 681.21 695.49 754.85 Machine Hire - - - - - 150.00 150.00 290.00 Off ice Expenses 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 Rent 360.00 360.00 360.00 360.00 360.00 360.00 360.00 360.00 Repairs and Maintenance 1,310.00 1,310.00 1,310.00 1,310.00 1,310.00 1,310.00 1,310.00 1,310.00 Utilities 190.00 390.00 970.00 1,360.00 1,560.00 2,340.00 2,530.00 2,730.00 Other Operating Costs 360.00 360.00 360.00 360.00 360.00 360.00 360.00 360.00

Total Operating Expenses 8,157.39 9,412.79 24,751.91 13,192.32 14,437.24 17,101.21 18,945.49 21,014.85 Fixed Cash Expenses

Taxes and Insurance - - - 4,760.00 - - - - Total Fixed cash Expenses - - - 4,760.00 - - - - Living Expenses 3,000.00 3,000.00 3,000.00 3,000.00 3,000.00 3,000.00 3,000.00 3,000.00 Other Expenses - - - - - - - - Scheduled Debt Payments

Real Estate Principal 265.00 - - 265.00 - - 265.00 - Interest (10% APR) 2,368.75 - - 2,364.33 - - 2,357.71 -

Equipment Principal - 665.00 - - 665.00 - - 665.00 Interest (10% APR) - 2,108.23 - - 2,097.14 - - 2,080.52

Operating Principal - - - - - - - - Interest (10% APR) 2,018.07 2,018.07 2,018.07 2,018.07 2,018.07 2,018.07 2,018.07 2,018.07

Total Cash Outflow 15,809.21 17,204.08 29,769.98 25,599.72 22,217.45 22,119.27 26,586.27 28,778.43 Cash Available 22,639.79 28,205.71 23,855.73 20,066.02 19,498.57 18,839.30 14,163.03 9,164.60 New Borrowing - - - - - - - - Cash Balance 22,639.79 28,205.71 23,855.73 20,066.02 19,498.57 18,839.30 14,163.03 9,164.60 Debt Outstanding

Real Estate 94,485.00 94,485.00 94,485.00 94,220.00 94,220.00 94,220.00 93,955.00 93,955.00 Equipment 84,329.00 83,664.00 83,664.00 83,664.00 82,999.00 82,999.00 82,999.00 82,334.00 Operating 242,168.00 242,168.00 242,168.00 242,168.00 242,168.00 242,168.00 242,168.00 242,168.00

Cash Flow BudgetCash Flow Budget

CharacteristicsCharacteristics• Includes Includes allall cash income and cash expenses. cash income and cash expenses.

– Cash inflows would include sale of capital items Cash inflows would include sale of capital items and new loans.and new loans.

– Cash outflows would include payment on loans Cash outflows would include payment on loans and cost of new capital assets.and cost of new capital assets.

– Includes personal cash income and expensesIncludes personal cash income and expenses

• Does notDoes not include any noncash income or include any noncash income or noncash expenses.noncash expenses.– For example, it does not include inventory For example, it does not include inventory

changes or depreciationchanges or depreciation

• Includes theIncludes the timingtiming of cash flows (monthly) of cash flows (monthly)

Mechanic of the cash flow budgetMechanic of the cash flow budget

Cash Flow Coverage RatioCash Flow Coverage Ratio• Liquidity indicatorLiquidity indicator• cash availablecash available ÷ ÷ cash required for interest and cash required for interest and

and principal payments of real estate and and principal payments of real estate and equipment loansequipment loans

• Excludes payments on the operating loan Excludes payments on the operating loan balance because they are flexiblebalance because they are flexible

• Indicates the extent to which the excess cash Indicates the extent to which the excess cash generated by the business provides a cushion for generated by the business provides a cushion for or flexibility in covering these debt-servicing or flexibility in covering these debt-servicing requirements requirements

cash flow coverage ratio = cash flow coverage ratio = liquidity liquidity

Debt-Servicing ratioDebt-Servicing ratio

• Liquidity indicatorLiquidity indicator

• Cash required for interest and principal Cash required for interest and principal

payments payments by total cash inflow by total cash inflow

ratio = ratio = burden of debt on cash flow burden of debt on cash flow

= = liquidity liquidity

Cash Flow Risk & Sensitivity RatiosCash Flow Risk & Sensitivity Ratios

• excess available cash excess available cash total cash total cash availableavailable– Percent farm revenue can decline and still Percent farm revenue can decline and still

meet cash flowsmeet cash flows

ratio = ratio = risk risk

Cash Flow Risk & Sensitivity RatiosCash Flow Risk & Sensitivity Ratios

• excess available cash excess available cash cash operating cash operating expensesexpenses– Percent farm expenses can increase and still Percent farm expenses can increase and still

meet cash flowsmeet cash flows ratio = ratio = risk risk

Cash Flow Risk & Sensitivity RatiosCash Flow Risk & Sensitivity Ratios

• excess available cash excess available cash total liabilities total liabilities

– Percent interest rates can increase and still Percent interest rates can increase and still

meet cash flowsmeet cash flows

ratio = ratio = risk risk

Uses for a cash flow budgetUses for a cash flow budget

• Prevent borrowing too much money too Prevent borrowing too much money too soon.soon.

• Planning of purchases, harvests and debt Planning of purchases, harvests and debt payments to minimize borrowing.payments to minimize borrowing.

• Does notDoes not measure profit measure profit

QuestionsQuestions

• 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?