sow good financial habits: cash flow budgeting
TRANSCRIPT
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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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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!
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Kelly McAdamUNH Cooperative Extension
64 Court St. Laconia, NH 03246(603) 527-5475
Thank you!
http://bit.ly/CashFlow2016WISA