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Cash Flow Management and Budgeting for Beef Production

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

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Cash Flow Management and Budgeting for Beef Production

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  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”

  21. 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

  22. Making the Cash --- Flow

  23. Happy Budgeting!

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