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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
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
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
factors affecting liquidity
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
financial contingency plan
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
financial contingency plan1
Financial Contingency Plan
  • Liquidate fixed assets: breeding stock, equipment, land
  • Reduce nonfarm expenses or increase nonfarm income
  • Borrow from family members
  • Bankruptcy
cash flow budget
Cash Flow Budget
  • A recorded projection of the amount and timing of all cash inflows and outflows in each accounting period
uses for a cash flow budget
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.

cash inflows
Cash Inflows
  • Beginning cash on hand
  • Sales and other cash income
  • New loans received
  • Sales of capital assets
  • Nonfarm income
cash outflows
Cash Outflows
  • Cash expenses
  • Principal payments
  • Purchase of capital assets
  • Nonfarm expenses
  • Ending cash on hand
do not include
Do not include:
  • Depreciation
  • Opportunity costs
    • Unpaid labor
    • Return on equity
  • Any other noncash income or expenses
cash flow budgets can be
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.
objective budget for a positive cash balance at the end of each period
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.
annual adjustments to cash flow
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
annual adjustments to cash flow1
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
seasonal adjustments
Seasonal Adjustments
  • Shift timing of crop and livestock sales
  • Shift timing of cash expenses (including loan payment dates)
  • Use short-term credit
  • Decision Tools
  • Information Files
  • Newsletter Articles
  • File C3-15, “Cash Flow Budget”
making the cash flow
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