USES AND ADVANTAGES OF THE CASH FLOW BUDGET

(1) FORMALIZES THE ENTIRE PLANNING PROCESS BY PROVIDING THE “BEST ESTIMATE” OF HOW THE BUSINESS PLANS TO OPERATE FOR THE COMING YEAR.

(2) PROVIDES PROJECTED REVENUE AND EXPENSE ESTIMATES NECESSARY TO PREPARE A PRO-FORMA INCOME STATEMENT.

(3) PROVIDES AN OPPORTUNITY TO EVALUATE BORROWING AND REPAYMENT PLANS.

(4) SERVES AS A “FINANCIAL CONTROL” TOOL.

(5) ALLOWS COORDINATION AMONG THE BUSINESS PLANS OF VARIOUS ENTERPRISES.

(6) DIRECTS ATTENTION TO THE MANAGEMENT OF CASH RESOURCES.

STEPS IN CASH BUDGETING

(1) PLAN CROPPING PROGRAM(2) SUMMARIZE THE MAJOR CROP COSTS(3) PLAN LIVESTOCK PURCHASES AND SALES(4) BUDGET CROP USAGE AND FEED

REQUIREMENTS(5) PLAN CAPITAL EXPENDITURES AND REPAIRS(6) PROJECT TERM LOAN PAYMENTS(7) PLAN THE FAMILY LIVING BUDGET

CASH FLOW MANAGEMENT

WHEN CASH AVAILABLE IS LESS THAN CASH REQUIRED, SHORT-TERM BORROWING MAY BE NECESSARY.

(1) REVOLVING LINE OF CREDIT

(2) NON-REVOLVING LINE OF CREDIT

(3) SHORT-TERM NOTES

WHEN CASH AVAILABLE IS GREATER THAN CASH REQUIRED THE BUSINESS MAY:

(1) MAINTAIN A DESIRED MINIMUM CASH BALANCE

(2) PAY INTEREST ON SHORT-TERM BORROWING

(3) REPAY SHORT-TERM BORROWED PRINCIPLE

(4) TRANSFER TO SAVINGS ACCOUNT

NEVER PLAN A ROLLOVER OF AN OPERATING LOAN.

IF THERE IS DIFFICULTY IN MEETING TERM-DEBT PAYMENTS, LOANS MAY NEED TO BE RESTRUCTURED TO MATCH CASH AVAILABLE TO REPAYMENT PLANS.

THE CAPACITY TO SERVICE CURRENT AND NON-CURRENT DEBT IS RELATED TO THE DEBT STRUCTURE

DEBT STRUCTURE SHOULD MATCH THE TERM OF THE LOAN TO THE ANTICIPATED LENGTH OF TIME THE ASSETS WILL BE USED IN THE BUSINESS

Pro Forma Income Statement

Pro forma statements are projected financial statements that embody a set of assumptions about future performance and funding requirements.While a cash flow budget allows the evaluation of marketing and production plans, and financing requirements, the cash flow budget does not measure profitability.

Profitability is best evaluated using a projected “pro forma” income statement.However, the starting point for a pro forma income statement is a well prepared cash flow budget.

PRO FORMA INCOME STATEMENT

(1) USE CASH BUDGET INFORMATION TO ESTIMATE REVENUE FORM CROP AND LIVESTOCK PRODUCTION, CUSTOM WORK, GOVERNMENT PAYMENTS, ETC.

(2) USE CASH BUDGET INFORMATION TO ESTIMATE OPERATION EXPENSES AND FEED PURCHASES.

(3) INCLUDE DEPRECIATION FROM DEPRECIATION SCHEDULES.

(4) USE INTEREST EXPENSES FOR TERM LOANS AND ESTIMATED INTEREST EXPENSES FROM ANTICIPATED OPERATING LOANS

(5) CAPITAL ADJUSTMENTS FOR ESTIMATED SALES OF CAPITAL ASSETS

(6) NON-FARM INCOME AND TAXES

FROM THE PRO-FORMA INCOME STATEMENT, PROFITABILITY CAN BE ESTIMATED.