Farm Management: Cash Flow Budgeting Notes

Features of a Cash Flow Budget

• A cash flow budget summarizes projected cash inflows and outflows over a specific time period (monthly or quarterly).
• A key purpose of this budget is to estimate future borrowing needs and assess the business's repayment abilities.

Chapter Objectives

• Decision Making: Recognize cash flow budgeting as a strategic tool.
• Structure Knowledge: Understand the components that constitute a cash flow budget.
• Procedure Illustration: Learn how to construct a cash flow budget.
• Comparison: Identify similarities and differences between cash flow budgets and income statements.
• Practical Uses: Discuss how cash flow budgets can be utilized effectively.
• Investment Insights: Use cash flow budgeting in the context of investment analysis.

Actual versus Estimated Cash Flows

• Cash flow budgets make estimates for future periods based on anticipated cash flows.
• Actual cash flows from past periods can be organized into a Statement of Cash Flows for comparison, providing insights into a business's financial structure.

Constructing a Cash Flow Budget

1. Develop a whole-farm plan.
2. Take inventory of resources.
3. Estimate crop production and livestock feed needs.
4. Evaluate potential cash receipts from livestock and crop sales.
5. Assess other cash income and operating expenses.
6. Include personal and non-farm cash expenses and any capital asset transactions.
7. Record scheduled principal and interest payments on existing debts.