sow good financial habits: cash flow budgeting

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11/30/2016 1 Sow Good Financial Habits: Cash Flow Budgeting KELLY MCADAM UNIVERSITY OF NEW HAMPSHIRE COOPERATIVE EXTENSION NATIONAL WOMEN IN SUSTAINABLE AGRICULTURE CONFERENCE PORTLAND, OR What does creating a budget mean to you? HTTP:// BIT.LY/CASHFLOW2016WISA

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Page 1: Sow Good Financial Habits:  Cash Flow Budgeting

11/30/2016

1

Sow Good Financial Habits:Cash Flow Budgeting

KELLY MCADAM

UNIVERSITY OF NEW HAMPSHIRE COOPERATIVE EXTENSION

NATIONAL WOMEN IN SUSTAINABLE AGRICULTURE CONFERENCE

PORTLAND, OR

What does creating a budget mean to you?

HTTP://BIT.LY/CASHFLOW2016WISA

Page 2: Sow Good Financial Habits:  Cash Flow Budgeting

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A Cash Flow Budget…

Summary of projected cash inflows and cash outflows of a business over a given period of time◦Usually projected one year out

◦Monthly projections

A Cash Flow Budget helps answer…

Is my business plan financially feasible?

When can I anticipate cash shortages?

Will I have the cash available when I need to make purchases?

If not, how much will I need to borrow and when can I pay it off?

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Business Checking Account(s) typically is the Focal Point

Cash In Cash Out

Cash In

Receive cash from selling products or services

Collections from customers (accounts receivable)

Sale of an asset

Money borrowed

Sale of stock or other cash transfers into the business

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Cash Out

Expenses incurred to produce and sell your products

Purchase of assets

Payments on debt

Personal draws

Quick OverviewMonth One

Cash Inflows:

$12,500

Cash Outflows

7,450

Cash Remaining:

5,050

Month Two

Beginning Cash

$5,050

Cash Inflows:

13650

Cash Outflows

8025

Cash Remaining:

10,675

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Beginning cash balance

+ Cash receipts

- Cash expenses

= Cash surplus (deficit)

+ New loans

- Payments on new loans

= Ending cash balance

January February March April May June July August SeptemberOctober NovemberDecember

Beginning Cash Balance: -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Operating Receipts:

Total Operating Receipts 0 0 0 0 0 0 0 0 0 0 0 0

Capital Sales

Total Capital Sales 0 0 0 0 0 0 0 0 0 0 0 0

Other Cash Inflows:

0 0 0 0 0 0 0 0 0 0 0 0

Total Cash Inflows: -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Total Cash Available: -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Operating Expenses:

Total Operating Expenses 0 0 0 0 0 0 0 0 0 0 0 0

Capital Expenditures:

0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0

Total Capital Expenditures: 0 0 0 0 0 0 0 0 0 0 0 0

Payments on Existing Debt

Family Living/Draws

Total Cash Required: -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Cash Surplus or Deficit: -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

New Loan Payments & Transfers-In:

New Operating Loans

New Term Debt

Other Transfers-In

New Loan Payments & Transfers-out:

Payments on Operting Loans

Payments on Term Debt

Other Transfers-out

Ending Cash Balance 0 0 0 0 0 0 0 0 0 0 0 0

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Getting our hands dirtyPREPARING A CASH FLOW BUDGET

What are some of your Cash Inflows?

Examples of Operating Receipts

Examples of Capital Sales that might occur in one year?

Other cash inflows?Cash Inflows from selling

assets

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Forecasting Cash Inflows

Record all cash receipts when actually received

To deal with uncertainty – prepare a few alternative

scenarios

Best

Most Likely

Worst Case

What are some of your Cash Outflows?

Examples of Operating Expenses

Examples of Capital Expenditures?

Others?◦ Depreciation?

◦ Interest?

◦ Taxes?

Cash Outflows

from sale of assets

Cash Outflows from producing and selling your

products

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Calculate Cash Surplus or Deficit

What is your minimum acceptable cash balance at the end of each month?

How will you get there?

How can I meet cash obligations?

Borrowing

Transfers-In from other sources:◦Personal cash

◦Other cash reserves

Adjusting your budget

For any Borrowing or Transfers-In, have a plan for paying that cash back

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Managing cash surplus

Double check! Are you sure you included all expenses?

Prioritize how you will spend a cash surplus◦ Take a Personal Draw?◦ Pay down existing debt?◦ Purchase that needed piece

of equipment, etc.?◦ Invest, rainy day fund

Cash Inflow our Outflow?

Sale of Apples, Blueberries (credit card sales, cash sales) ◦ Operating Receipt, Cash Inflow

Sale of a mower ◦ Capital Sale, Cash Outflow

I sell apples in November, but don’t receive the check yet. ◦ Record only when expect to receive payment, Operating Receipt, Cash Inflow

Purchase of fertilizer◦ Operating Expense, Cash Outflow

Pay employees◦ Operating Expense, Cash Outflow

Depreciation◦ Not a cash transaction

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Scenario, Happy Fruit FarmCash Flow Budget

For Year: 2017 Happy Fruit Farm

January February March April May June July August September October November December

Beginning Cash Balance: 9,500.00$ 7,280.00$ 5,260.00$ 3,240.00$ 1,220.00$ (4,100.00)$ (7,970.00)$ (8,440.00)$ (3,560.00)$ 4,470.00$ 13,800.00$ 13,580.00$

Operating Receipts:

PYO Apples 6500 10500 12500 2500 2500

PYO Blueberries 6500 6500 3500

Pumpkins-Retail 2500 3000

Pumpkins-Wholesale 1000 1500

Total Operating Receipts 0 0 0 0 0 0 6500 13000 17500 17000 2500 2500

Capital Sales

Sale of mower 1500

Total Capital Sales 0 0 0 1500 0 0 0 0 0 0 0 0

Other Cash Inflows:

0 0 0 0 0 0 0 0 0 0 0 0

Total Cash Inflows: -$ -$ -$ 1,500.00$ -$ -$ 6,500.00$ 13,000.00$ 17,500.00$ 17,000.00$ 2,500.00$ 2,500.00$

Total Cash Available: 9,500.00$ 7,280.00$ 5,260.00$ 4,740.00$ 1,220.00$ (4,100.00)$ (1,470.00)$ 4,560.00$ 13,940.00$ 21,470.00$ 16,300.00$ 16,080.00$

Operating Expenses:

Seed 200

Chemicals 800

Fertilizer 500 200

Fuel 100 200 250 250 300 450 450 100 100

Possible Solutions?

Hold off on purchasing a new mower, or refrain from a down payment

Re-think product pricing

Transfer money-in, and pay back when cash inflows are greater (August-September)

Re-allocate expenses for farm truck, possibly others

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Pitfalls when Forecasting Cash Flow

Overstating sales forecasts

Underestimating costs and delays likely to be encountered

Ignoring historic trends or performances

Making unduly-optimistic assumptions about the availability of bank loans, credit, grants, equity, etc.

Other Pointers

Don’t get too hung up on the placement of inflows and outflows, just make sure they are accounted for.

Lots of estimating can be involved. Be sure to look back and see what actually happened. (Cash Flow Statement)

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Does Positive Cash Flow Mean Profit?

Cash purchases of equipment and inventory will not show on your Income Statement but will be in your cash flow

Sales of equipment, breeding livestock, other assets will not show on the Income Statement, but will be in your cash flow

Depreciation is a non-cash transaction, but will be on your Income Statement

Not Exactly…

Your Turn!

Page 13: Sow Good Financial Habits:  Cash Flow Budgeting

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Kelly McAdamUNH Cooperative Extension

64 Court St. Laconia, NH 03246(603) 527-5475

[email protected]

Thank you!

http://bit.ly/CashFlow2016WISA