EC-616
A projected cash flow statement is used to evaluate cash inflows and outflows to deter. mine when, how much, and for how long cash deficits or surpluses will exist for a farm business during an upcoming time period. That information can then be used to justify loan requests, determine repayment schedules, and plan for short-term investments. This publication focuses on preparing and using a projected cash flow statement in managing the farm business.
A projected cash flow statement is best defined as a listing of expected cash inflows and outflows for an upcoming period (usually a year). Anticipated cash transactions are entered for the subperiod they are expected to occur. The length of the subperiod depends upon whether a monthly or quarterly cash flow statement is used. The word cash is crucial in this definition, because only cash items are included in a cash flow statement.
Cash inflows include cash operating and capital receipts and can include nonfarm as well as farm revenues. Cash outflows usually include such things as farm operating and capital outlays, family living expenses, and loan payments. However, if the farming operation is completely separate from the family, living expenses would not be included in the cash flow statement for the farming operation. An example of such an arrangement would be a farm that is incorporated and pays salaries to family members. Also included in the list of cash outlays are debt repayment commitments, both principal and interest.
Operating expenses are usually not paid evenly over the course of a year for many farm enterprises. Also, marketing patterns for many farm products are not evenly distributed throughout the year. Therefore, revenues usually do not flow into the business, and expenses do not flow out of the business on an equal and regular basis during the year. This results in periods of cash deficits and surpluses.
Knowledge of the amounts of cash deficits and surpluses and the timing and duration of each aids tremendously in setting up a line of credit with a lender. The projected cash flow statement clearly identifies when loan funds will be needed and when the lender can expect to be repaid. This information is extremely useful in justifying loan requests, especially during financially stressful times.
In addition, a projected cash flow statement enables the user to identify the amount and duration of cash surpluses, which is useful when deciding among the various short-term deposit instruments currently available to the investor (i.e., 3-month certificates, 6-month money market certificates, money market funds, etc.).
Of course, the accuracy of the information provided by a projected cash flow statement depends upon the accuracy of revenue and expense projections, the detail included in the cash flow statement, and whether the statement is prepared for quarters, months, or even weeks. Even though it may lack accuracy be cause of being an estimate, a projected cash flow statement does provide a projection of expected cash deficits and surpluses, which can be updated as the year progresses.
Perhaps the best way to understand how a projected cash flow statement is organized is to think in terms of a calendar, with the columns representing the subperiods for the planning period used in the projection. Usually the planning period is one year, but the subperiods can be as detailed as you desire. The subperiods can represent quarters, months, and even weeks.
The rows represent various categories for the beginning cash balance, cash receipts, cash expenses, borrowing, saving, and the ending cash balance. Of course, the beginning cash balance for each subperiod is the ending cash balance for the previous subperiod.
A very simplified cash flow statement has been adapted from a statement developed by Thomas L. Frey and Danny A. Klinefelter (Coordinated Financial Statements for Agriculture) and is used to explain how a projected cash flow statement is organized (handout 1). The statement used here is a quarterly state ment for one year and consists of 5 columns; a column for each of the 4 quarters plus one for projected annual totals. The number of lines necessary to list revenues and expenses depends upon the number needed to account for all revenue and expense items for the farming operation. The simple organization of this statement would make it inadequate in many farming operations. It is used here to teach the mechanics of cash flow budgeting.
Projected
Entry Quarter Quarter Quarter Quarter totals
-------------------------------------------------------------------------------------------
1. Beginning cash balance
(all readily available funds)_____________________________________________________
Operating receipts: xx xx xx xx xx
2. Grain and feed _____________________________________________________
3. Livestock and poultry _____________________________________________________
4. Custom work _____________________________________________________
5. _________________________ _____________________________________________________
Capital receipts: xx xx xx xx xx
6. Breeding stock _____________________________________________________
7. Machinery and equipment _____________________________________________________
8. __________________________ _______________________________________________________
Nonfarm income: xx xx xx xx xx
9. Off-farm wages
10. Total cash available
(add lines 1 thru 9) _____________________________________________________
Operating expenses: xx xx xx xx xx
11. Fertilizer and lime _____________________________________________________
12. Seed and chemicals _____________________________________________________
13. Machine operation and
drying _____________________________________________________
14.__________________________ _____________________________________________________
15.Total cash operating
expenses (add lines
11 thru 14)
Livestock and feed _____________________________________________________
purchases: xx xx xx xx xx
16. Feeder livestock _____________________________________________________
17. ______________________ _____________________________________________________
Capital expenditures: xx xx xx xx xx
18.Machinery and equipment _____________________________________________________
19.__________________________ _____________________________________________________
Other expenses: xx xx xx xx xx
20. Family living _____________________________________________________
21. Intermediate and long-term
loan payments (principal) _____________________________________________________
22. (interest) _____________________________________________________
23. Total cash required (add
lines 15 thru 22) _____________________________________________________
24. Cash available less cash
required (line 10 minus
line 23) _____________________________________________________
25. Inflows from savings
(principal) _____________________________________________________
26. (interest) _____________________________________________________
27. Cash position before
borrowing and after savings_____________________________________________________
28. Money to be borrowed:
(Operating loans) _____________________________________________________
(Intermediate and long-
term loans) _____________________________________________________
29. Oper. loan payments
(principal) _____________________________________________________
(interest) _____________________________________________________
30. Outflows to savings _____________________________________________________
31. Ending cash balance _____________________________________________________
Loan balances (at end of
period): xx xx xx xx xx
32. Current year's oper. loans _____________________________________________________
33. Previous year's oper. loans_____________________________________________________
34. Intermediate and long-term
loans _____________________________________________________
35. Total loans _____________________________________________________
-----------------------------------------------------------------------------------------
Cash Available
The first line of any cash flow statement is usually the beginning cash balance for the period. That balance includes all readily available funds (i.e., checking accounts, cash, mutual funds with checkwriting privileges, or arrangements for transferring funds to a checking account, etc.).
The next section is the receipt section, which is divided into three subsections: operating receipts, capital receipts, and nonfarm income. Operating receipts (lines 2-5) include receipts from crops, livestock, custom work, government payments, hedging account withdrawals, and any other cash receipts to the farm business. Each projected cash receipt is entered in the quarter that the cash is expected. It is usually a good idea to include several blank lines throughout the form (line 5 for example), so that the statement can be tailored to meet your needs.
Capital receipts (lines 6-8) are cash inflows from the sale of capital items, such as breeding livestock, machinery, and equipment. Also, only the amount of cash expected to flow into the operation is entered. If farmer A expects to trade a boar to farmer B and receive $50 in cash plus his new boar, only the $50 is entered in farmer A's projected cash flow statement. That amount is entered in the quarter that the cash is expected.
Nonfarm income includes off-farm wages (line 9) and cash received from interest payments, dividends, and other nonfarm sources. The total cash available for the quarter (line 10) is then calculated by adding the beginning cash balance, operating receipts, capital receipts, and nonfarm income.
Cash Required
The expense section is divided into four subsections: operating expenses, livestock and feed purchases, capital expenditures, and other expenses. Operating expenses (lines 11-14) include such things as seed, fertilizer, breeding expenses, real estate and property taxes, insurance, utilities, and veterinary. The amount for each item is entered in the quarter when it is expected to be paid, which may be different from when you actually take possession of the item.
The next subsection is labeled livestock and feed purchases (lines 16 and 17) and includes cash expenses for feeder livestock as well as for purchasing breeding livestock. Also included are cash outlays for feed.
The third subsection is labeled capital expenditures (lines 18 and 19) and includes cash outlays to purchase machinery, equip ment, buildings, and improvements. If the dealer is to be paid in full and you borrow the money from another lender (i.e., commercial bank, PCA, etc.), the entire amount to be paid is entered in the appropriate quarter. The cash flowing into the operation from the loan will be discussed later.
Other expenses (lines 20-22) can include hedging account deposits, gross family living withdrawals, nonfarm business expenditures, and income tax and social security payments. Also included in this section are principal and interest payments due for intermediate and long-term loans. The total cash required for the quarter (line 23) is calculated by adding all expenses projected for the quarter.
The Cash Position
Subtracting total cash required (line 23) from total cash available (line 10) yields the cash position before borrowing and inflows from savings. If the cash position is negative or below a specified amount, you can transfer any money available in savings to the checking account (lines 25 and 26).
If the cash position before borrowing and after savings (line 27), is still negative or below some specified amount, you must borrow those funds needed to satisfy the deficit and/or maintain the minimum amount desired in the checking account. Line 28 provides a place to enter operating, intermediate, and long-term borrowing.
A line is also needed to schedule principal and interest payments for operating loans (line 29), which lenders usually require to be repaid during the upcoming 12 months from the proceeds of the enterprises financed. For example, if operating funds are borrowed in the spring to plant the corn crop, those funds are usually scheduled to be repaid when the corn is expected to be sold. Of course, if the corn is stored and expected to be sold the next year, then the payment should be scheduled the next year.
Two additional lines are needed to account for any cash remaining at the end of the period (lines 30 and 31). First, when the amount of cash is greater than the minimum balance desired, the excess will likely be invested in a short-term security, money market fund, etc. Therefore, a line is needed to account for funds flowing out of the farm business and into some type of savings or short-term investment (line 30). This line is necessary since that amount of cash will not be available for use by the farm business until either the security matures or until the funds are withdrawn by the operator. Line 31 is the ending cash balance for the quarter. This is also the beginning cash balance for the next quarter.
The cash position for each quarter is then calculated sequentially as described above, until the ending cash balance for the last quarter is calculated. That amount then becomes the beginning cash balance for the first quarter of the next year's projected cash flow state ment.
The last four lines (32-35) enable the borrower to keep a running total of the various loan balances. The lines are labeled to distinguish between current year operating loans (line 32) and operating loans remaining from a previous period (line 33). This information is extremely useful when applying for a line of credit from a lender, because the lender needs to know the maximum amount expected to be outstanding as well as amounts expected to be outstanding throughout the year, The balances for each period are increased or decreased as funds are disbursed and payments are made.
Intermediate and long-term loan balances are on a separate line (line 34) and can be increased or decreased as additional funds are borrowed or payments made. The total loan balance outstanding each period can then be calculated by summing the loan balances outstanding for each type of loan and recording the total on line 35.
To illustrate how a projected cash flow statement is prepared, an example is used to describe the anticipated cash transactions for a hypothetical farm operator, Fred Farmer. The information describing this farming operation is presented in handout 2. To understand the mechanics of completing a projected cash flow statement, the example will be used first to complete an annual projected cash flow statement. Therefore, the information from handout 2 will be entered in the column labeled Projected Totals.
An Annual Projected Cash Flow Statement
In this simple example, transfer the information contained in handout 2 to the projected total column for your projected cash flow state ment (handout 1). To check yourself refer to Figure 1, as the transactions are discussed in the following paragraphs.
Cash transactions expected during the upcoming 12-month period:
1. The cash balance on January 1 is $2,500. (Line 1).
2. Corn to be sold during the upcoming year should generate $26,250. (Line 2).
3. Off-farm wages for the upcoming year are expected to equal $20,000. (Line 9).
4. Operating expenses of $12,500 are expected for the upcoming year. (Line 15).
5. A new piece of machinery costing $6,000 will likely be purchased; $5,000 will be borrowed from the local bank. (Line 18).
6. Family living expenses of $16,000 are expected during the upcoming year. (Line 20).
7. Intermediate and long-term principal payments on loans are expected to equal $11,000, with another $12,250 due in interest. (Lines 21 and 22).
8. The farmer has a money market fund for emergencies that currently has a balance of $5,000. This money will be used before additional money is borrowed.
On January 1, there is $2,500 in cash, or in the checking or negotiable order withdrawal account, or perhaps in a money market fund with checkwriting provisions. Remember, this balance is the amount at the end of the previous year. It is entered on line 1.
Next, expect $46,250 to flow into the operation during the upcoming period. This is found by adding the $26,250 from the sale of crops (line 2) to the amount of money flowing into the operation from an off-farm job, $20,000 (line 9). Thus, the total cash available is $48,750 (line 10).
Also, expect $57,750 to flow out of the operation during the upcoming year. This is found by adding operating expenses of $12,500 (line 15), capital expenditures of $6,000 (line 18), family living of $16,000 (line 20), and intermediate and long-term loan payments of $23,250; $11,000 in principal (line 21) and $12,250 in interest (line 22).
The cash position at the end of the year would be minus $9,000 (line 24), which is not a desirable way to end the year. At this time Fred must think about ways to obtain some additional cash. This can be accomplished by increasing cash available, reducing cash required, bringing in savings, or borrowing.
Line Projected no. Item totals --------------------------------------------------------------------------------- 1. Beginning cash balance $ 2,500 2. Grain and feed 26,250 9. Off-farm wages 20,000 10. Total cash available ----------- $48,750 15. Total cash operating expenses $12,500 18. Machinery and equipment 6,000 20. Family living 16,000 21. Inter. and long-term loan payment (principal) 11,000 22. Inter. and long-term loan payment (interest) 12,250 23. Total cash required ----------- $57,750 24. Cash available less cash required -$9,000 25. Inflows from savings (principal) 5,000 27. Cash position before borrowing and after savings -$4,000 28. Money to be borrowed (intermediate and long-term) 5,000 ----------- 31. Ending cash balance $1,000 ---------------------------------------------------------------------------------
As you can see from the information in handout 2, on January 1 Fred had $5,000 in a money market fund. That amount can be transferred to his checking account to help alleviate part of his cash flow shortage (line 25). However, even after that transfer he is still short $4,000 (line 27).
The next source of cash is borrowing, either in the form of operating funds or intermediate and long-term loans. As you probably remember, Fred plans to borrow $5,000 when purchasing that piece of machinery. After entering that amount on line 28, Fred has an ending cash balance of $1,000 (line 31), which is the beginning cash balance for the next year.
A Quarterly Projected Cash Flow Statement
However, the year can be divided into quarters, months, weeks, or even days. Each division provides a more detailed projection, but normally projected cash flow statements are done either quarterly or monthly. A quarterly statement is often sufficient for operations with fewer transactions during a year, such as a cash grain farm. A monthly cash flow statement may be useful for operations that have a greater number of transactions during a year, such as a dairy or a farrow-to-finish swine operation.
Now, let's look at the items in handout 3, which provide additional information on the timing of those cash transactions listed in handout 2. We will use that information to complete lines 1 through 35 of the projected cash flow statement. The transactions for the first and second quarters will be discussed in the following paragraphs. Then you should try to complete the last two quarters of the year on your own. An answer sheet is provided for you to check your answers.
It is easier to transfer all of the information in handout 3 to the appropriate quarters of the projected cash flow statement before totaling any of the subsections. The following steps list the sequence of events, and Figure 2 provides the answers for the first quarter.
Cash transactions expected during the upcoming 12-month period:
1. Cash balance on January 1 is $2,500.
2. Fred Farmer expects to sell all the corn in inventory, 4,230 bushels, in July for $3.25 per bushel or approximately $13,750.
3. Continue to work full-time and receive wages of $5,000 each quarter.
4. Produce 100 bushels of corn per acre during the upcoming year on 100 acres or 10,000 bushels of total production. 5,000 bushels are expected to be sold at harvest (October) for $2.50 per bushel or $12,500. The remaining 5,000 bushels will be stored.
5. Acreage production costs for the corn are expected to be $53.00 for fertilizer, $31.00 for seed and chemicals, and $41.00 for machine operation and drying. All production expenses will probably be paid in April, except $2,000 for machine operation and drying, which will be paid in October.
6. Fred expects to purchase a piece of machinery on January 2 of the upcoming year that will cost $6,000; $5,000 will be borrowed and paid off in five annual payments of $1,000 each. The first payment is due in December of the upcoming year. The interest rate is 15 percent.
7. Family living expenses will be about $16,000 during the upcoming year and will be spread evenly over the 4 quarters.
8. Fred has a machinery loan of $10,000 at 15 percent interest. The next annual payment of $5,000 plus interest is due in December of the upcoming year.
9. Fred also has a $100,000 real estate loan at 10 percent. The next annual payment of $5,000 plus interest is due in December of the upcoming year.
10. Operating loans can be obtained at an interest rate of 15 percent. None is currently outstanding.
11. Fred has $5,000 in a money market fund, earning 10 percent.
12. Mr. Farmer wants to always keep at least $1,000 in his checking account or cash balance, but no more than $5,000. Any excess funds will be placed in the money market fund in $1,000 increments.
13. All loan payments and savings transactions are conducted as of the end of the quarter.
14. Fred will pay the operating loan off, before adding cash to his money market fund.
Projected
Entry Q1 Q2 Q3 Q4 totals
---------------------------------------------------------------------------------------
1. Beginning cash balance 2,500 2,500
Operating receipts: xx xx xx xx xx
2. Grain and feed 26,250
______________________________________________
3. Livestock and poultry ______________________________________________
4. Custom work ______________________________________________
5.______________________ ______________________________________________
Capital receipts: xx xx xx xx xx
6. Breeding stock ______________________________________________
7. Machinery and equipment ______________________________________________
8. ____________________________ ______________________________________________
Nonfarm income: xx xx xx xx xx
9. Off-farm wages 5,000 5,000 5,000 5,000 20,000
10. Total cash available 7,500 48,750
(add lines 1 thru 9) ______________________________________________
Operating expenses: xx xx xx xx xx
11. Fertilizer and lime 5,300
12. Seed and chemicals 3,100
13. Machine operation and 4,100
drying ______________________________________________
14. ___________________________ ______________________________________________
15. Total cash operating 0 12,500
expenses (add lines
11 thru 14)
Livestock and feed
purchases: xx xx xx xx xx
16. Feeder livestock ______________________________________________
17. _____________________________ ______________________________________________
Capital expenditures: xx xx xx xx xx
18. Machinery and equipment 6,000 6,000
19. ___________________________ ______________________________________________
Other expenses: xx xx xx xx xx
20. Family living 4,000 4,000 4,000 4,000 16,000
21. Intermediate and long-term
loan payments (principal) 11,000
22. (interest) ______________________________________________
23. Total cash required 10,000 57,750
lines 15 thru 22) ______________________________________________
24. Cash available less cash -2,500 -9,000
required (line 10 minus
line 23)
25. Inflows from savings
(principal) 5,000
______________________________________________
26. (interest)
27. Cash position before
borrowing and after savings -2,500 -4,000
28.Money to be borrowed: ______________________________________________
(Operating loans)
(Intermediate and long-
term loans) 5,000 5,000
29. Oper. loan payments
(principal) ______________________________________________
(interest) ______________________________________________
30. Outflows to savings 0
31. Ending cash balance 2,500 1,000
Loan balances (at end of ______________________________________________
period): xx xx xx xx xx
32. Current year's oper. loans 0 0
______________________________________________
33. Previous year's oper. loans 0
34. Intermediate and long-term ______________________________________________
loans 115,000 104,000
35. Total loans 115,000 104,000
---------------------------------------------------------------------------------------
1. We know the beginning cash balance for the year and the first quarter is $2,500 (line 1).
2. There were no cash receipts from the sale of corn in the first quarter.
3. Off-farm wages during each quarter are expected to equal $5,000. Now, this is the amount that is expected to be taken home, and not the gross amount. Since we know that amount will occur in each quarter, we can record $5,000 on line 9 for each quarter.
4. There were no operating expenses during the first quarter.
5. However, Fred expects to spend $6,000 for a piece of equipment during the first quarter (line 18).
6. Family living expenses of $4,000 are expected in every quarter (line 20).
Now let's calculate our total cash available for the first quarter:
Line 1 Beginning cash balance $ 2,500 9 Off-farm wages + 5,000 --------- 10 Total cash available $ 7,500
Now let's calculate our total cash required for the first quarter:
Line
18 Machinery and equipment $ 6,000
20 Family living + 4,000
---------
23 Total cash required $10,000
Cash available less cash required is:
Line
10 $ 7,500
23 -10,000
--------
24 -$2,500
However, remember $5,000 was to be borrowed for the piece of machinery, which has not yet been taken into account. It should be entered on line 28. Now our ending cash balance is $2,500 (line 31), which is also the beginning cash balance for the second quarter.
Also, Fred still has his $5,000 in the money market fund. He also has a $100,000 real estate loan and a $15,000 machinery loan ($10,000 original loan plus $5,000 new loan) for total intermediate and long-term loans of $115,000 (line 34). Total loans equal $115,000 (line 35).
Next, we will complete the second quarter. To check your answers, refer to Figure 3. The following steps list the sequence of events.
1. During the second quarter we again notice that no grain or livestock is expected to be sold.
2. Again, $5,000 is expected from off-farm wages.
3. Operating expenses during the second quarter include: $5,300 for fertilizer, $3,100 for seed and chemicals, and $2,100 for machinery operations.
4. Family living expenses again equal $4,000 for the quarter.
Now it is time to total.
Line
1 Beginning cash balance $ 2,500
9 Off-farm wages 5,000
10 Total cash available $ 7,500
15 Total cash operating expenses $10,500
20 Family living 4,000
--------
23 Total cash required $14,500
Cash available less cash required is:
Line
10 $ 7,500
23 $-14,500
---------
24 $-7,000
At this time Fred brings his savings into the cash flow. The inflow from savings is $5,000 in principal (line 25) and the interest (line 26) is $250, since $5,000 was kept in the money market fund for 6 months at a 10 percent interest rate.
Projected
Entry Q1 Q2 Q3 Q4 totals
--------------------------------------------------------------------------------------
1. Beginning cash balance 2,500 2,500 2,500
Operating receipts: xx xx xx xx xx
2. Grain and feed 26,250
3. Livestock and poultry ______________________________________________
4. Custom work ______________________________________________
5. ____________________________ ______________________________________________
Capital receipts: xx xx xx xx xx
6. Breeding stock ______________________________________________
7. Machinery and equipment ______________________________________________
8. ____________________________ ______________________________________________
Nonfarm income: xx xx xx xx xx
9. Off-farm wages 5,000 5,000 5,000 5,000 20,000
10. Total cash available 7,500 7,500 48,750
(add lines 1 thru 9)
Operating expenses: xx xx xx xx xx
11. Fertilizer and lime 5,300 5,300
12. Seed and chemicals 3,100 3,100
13. Machine operation and 2,100 4,100
drying
14. ____________________________ ______________________________________________
15. Total cash operating 10,500 12,500
expenses (add lines ______________________________________________
11 thru 14)
Livestock and feed
purchases: xx xx xx xx xx
16. Feeder livestock ______________________________________________
17. ____________________________ ______________________________________________
Capital expenditures: xx xx xx xx xx
18. Machinery and equipment 6,000 6,000
______________________________________________
19. ___________________________ ______________________________________________
Other expenses: xx xx xx xx xx
20. Family living 4,000 4,000 4,000 4,000 16,000
21. Intermediate and long-term ______________________________________________
loan payments (principal) 11,000
22. (interest) 12,250
23. Total cash required 10,000 14,500 57,750
lines 15 thru 22)
______________________________________________
24. Cash available less cash -2,500 -7,000 -9,000
required (line 10 minus
line 23)
25. Inflows from savings
(principal) 5,000 5,000
26. (interest) 250
27. Cash position before ______________________________________________
borrowing and after savings -2,500 -1,750 -4,000
28. Money to be borrowed: ______________________________________________
(Operating loans) 5,000
(Intermediate and long- ______________________________________________
term loans) 5,000 5,000
29. Oper. loan payments
(principal) ______________________________________________
(interest) ______________________________________________
30. Outflows to savings 0
31. Ending cash balance 2,500 3,250 1,000
Loan balances (at end of
period): xx xx xx xx xx
32. Current year's oper. loans 0 5,000 0
33. Previous year's oper. loans 0 0
______________________________________________
34. Intermediate and long-term
loans 115,000 115,000 104,000
35. Total loans 115,000 120,000 104,000
-----------------------------------------------------------------------------------------
The cash position before borrowing and after savings (line 27) is now minus $1,750. At this time Mr. Farmer decides to borrow $5,000 in the form of an operating loan. This is used to cover the cash deficit and to cover any unexpected expenses that may have been omitted. The operating loan is entered on line 28. So, the ending cash balance is $3,250, which is also the beginning cash balance for the third quarter.
Total loans include the $115,000 in intermediate and long-term loans (line 34), plus the $5,000 operating loan (line 32). The total is then $120,000 (line 35).
At this time, you should complete quarters 3 and 4. The answer sheet for Fred Farmer's projected cash flow statement is presented in Figure 4. Check your answers with the answer sheet. If there is a difference and you do not understand the reason for that difference, please contact your county Extension agent.
There is one additional point that should be made. When we prepared the annual projected cash flow statement, did it show that Fred would need an operating loan? The answer is no. That was found only when the quarterly cash flow statement was prepared. This only illustrates one of the benefits of preparing a projected cash flow statement on a more frequent basis; it provides more detailed information. Many people prepare a monthly projected cash flow statement, because they can get actual cash transactions from their monthly bank statement.
Projected
Entry Q1 Q2 Q3 Q4 totals
----------------------------------------------------------------------------------------------
1. Beginning cash balance
2,500 2,500 3,250 4,815 2,500**
Operating receipts: xx xx xx xx xx
2. Grain and feed 13,750* 12,500 26,250
3. Livestock and poultry ----------------------------------------------------
4. Custom work ----------------------------------------------------
5. ____________________________ ----------------------------------------------------
Capital receipts: xx xx xx xx xx
6. Breeding stock ----------------------------------------------------
7. Machinery and equipment ----------------------------------------------------
8. _____________________________ ----------------------------------------------------
Nonfarm income: xx xx xx xx xx
9. Off-farm wages 5,000 5,000 5,000 5,000 20,000
10. Total cash available 7,500 7,500 22,000 22,315 48,750**
(add lines 1 thru 9) ----------------------------------------------------
Operating expenses: xx xx xx xx xx
11. Fertilizer and lime 5,300 5,300
12. Seed and chemicals 3,100 3,100
13. Machinery operation and 2,100 2,000 4,100
drying ----------------------------------------------------
14. ____________________________ ----------------------------------------------------
15. Total cash operating 10,500 2,000 12,500
expenses (add lines ----------------------------------------------------
11 thru 14)
Livestock and feed
purchases: xx xx xx xx xx
16. Feeder livestock ----------------------------------------------------
17. ____________________________
Capital expenditures: xx xx xx xx xx
18. Machinery and equipment 6,000 6,000
19. ____________________________ ----------------------------------------------------
Other expenses: xx xx xx xx xx
20. Family living 4,000 4,000 4,000 4,000 16,000
21. Intermediate and long-term
loan payments
(principal) 11,000 11,000
22. (interest) 12,250 12,500
23. Total cash required 10,000 14,500 4,000 29,250 57,750
lines 15 thru 22)
24. Cash available less cash -2,500 -7,000 18,000 -6,935 9,000**
required (line 10 minus
line 23) ----------------------------------------------------
25. Inflows from savings
(principal) 5,000 8,000 5,000**
26. (interest) 250 200
27. Cash position before ----------------------------------------------------
borrowing and after savings -2,500 -1,750 18,000 1,265 -4,000**
28. Money to be borrowed:
(Operating loans) 5,000
(Operating loans) ___________________________________________________
(Intermediate and long-
term loans) 5,000 5,000
29. Oper. loan payments
(principal) 5,000
(interest) 185*
30. Outflows to savings 8,000 0
31. Ending cash balance 2,500 3,250 4,815 1,265 1,000**
Loan balances (at end of ----------------------------------------------------
period): xx xx xx xx xx
32. Current year's oper. loans 0 5,000 0 0 0
33. Previous year's oper. loans 0 0 0 0 0
----------------------------------------------------
34. Intermediate and long-term 115,000 115,000 115,000 104,000 104,000
loans ----------------------------------------------------
35. Total loans 115,000 120,000 115,000 104,000 104,000
*Rounded to the nearest $5.
**These lines cannot be totaled across the four quarters to arrive
at the projected total. This is because of the carryover effect of
taking the ending cash balance for a previous quarter and transferring
that balance to the beginning balance for the next quarter.
The most precise approach for arriving at the numbers to use in a projected cash flow statement is to calculate the amount of each input item needed for the various crop or livestock enterprises, and the projected production levels for those enterprises. Then an estimate is needed for prices and the timing of expenses and revenues. Those amounts would then be entered in the appropriate quarter. This approach assumes the farm business is operating with a marketing plan to arrive at projected sale dates and prices. A review of last year's actual cash flow statement would help tremendously in estimating receipts and expenses and in projecting the timing of those receipts and expenses for the upcoming year.
However, some farming operations do not keep detailed records, so a less precise approach would be needed. In that case, the best place to get the estimates is from last year's totals. Those numbers can then be prorated to the appropriate quarter and adjusted to reflect expected changes in production, prices, buying dates, and selling dates. Check stubs from last year can aid in deciding when expenses were paid and receipts received.
The most precise method for monitoring a projected quarterly cash flow statement is to add 12 columns to the 5 that are already included in the statement. One additional column each quarter allows you to record actual cash flow entries each quarter. A year-to-date column for projected and actual totals allows the user to monitor year-to-date totals for receipts and expenses. An example of these additions is presented in Figure 5.
The additions allow comparison of actual cash flow entries with projected amounts, which enable calculation of differences between them. This enables you to monitor the cash position of the operation throughout the upcoming year.
However, a projected cash flow statement can be used without any of the three columns. The key point to remember is a projected cash flow statement can be tailored to fit the needs of each individual operation. It can be as simple or as complex as is needed to be workable and useful.
Quarter___________________
Year-to-date Year-to-date
Entry Projection Actual projection actual
----------------------------------------------------------------------------------------
1. Beginning cash balance
(all readily available funds) _____________________________________________________
Operating receipts: xx xx xx xx
2. Grain and feed _____________________________________________________
3. Livestock and poultry _____________________________________________________
4. Custom work _____________________________________________________
5. ____________________________ _____________________________________________________
Capital receipts: xx xx xx xx
6. Breeding stock _____________________________________________________
7. Machinery and equipment _____________________________________________________
8. ____________________________ _____________________________________________________
Nonfarm income: xx xx xx xx
9. Off-farm wages _____________________________________________________
10. Total cash available
(add lines 1 thru 9) _____________________________________________________
Operating expenses: xx xx xx xx
11. Fertilizer and lime _____________________________________________________
12. Seed and chemicals _____________________________________________________
13. Machine operation and
drying _____________________________________________________
14. ____________________________ _____________________________________________________
15. Total cash operating
expenses (add lines
11 thru 14) _____________________________________________________
Livestock and feed
purchases: xx xx xx xx
16. Feeder livestock _____________________________________________________
17. ____________________________ _____________________________________________________
Capital expenditures: xx xx xx xx
18. Machinery and equipment _____________________________________________________
19. ____________________________ _____________________________________________________
Other expenses: xx xx xx xx
20. Family living _____________________________________________________
21. Intermediate and long-term
loan payments _____________________________________________________
(principal) _____________________________________________________
22. (interest) _____________________________________________________
23. Total cash required
add lines 15 thru 22) _____________________________________________________
24. Cash available less cash
required (line 10 minus
line 23) _____________________________________________________
25. Inflows from savings
(principal) _____________________________________________________
26. (interest) _____________________________________________________
27. Cash position before
borrowing and after savings _____________________________________________________
28. Money to be borrowed:
(Operating loans) _____________________________________________________
(Intermediate and long-
term loans) _____________________________________________________
29. Oper. loan payments
(principal) _____________________________________________________
(interest) _____________________________________________________
30. Outflows to savings
31. Ending cash balance _____________________________________________________
Loan balances (at end of
period): xx xx xx xx
32. Current year's oper. loans _____________________________________________________
33. Previous year's oper. loans _____________________________________________________
34. Intermediate and long-term _____________________________________________________
loans _____________________________________________________
35. Total loans _____________________________________________________
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The focus of this publication is on preparing and using a projected cash flow statement to determine when, how much, and for how long cash deficits and surpluses are likely to exist for a farm business during some future period. A projected cash flow statement is described as a listing of all expected cash inflows and outflows for the coming year. The statement can be prepared for whatever time period is most useful to you; quarterly, monthly, and even weekly if desired. This information enables you to communicate borrowing needs to your lender and to establish a repayment schedule. In addition, the information can be used to identify possible investment opportunities during the planning period.
An additional column each quarter enables you to record actual cash receipts and expenses in the quarter those transactions occur. That information can then be compared to projected amounts to determine differences that may exist. Projected and actual year-to-date columns can also be added to determine how year-to-date totals for receipts and expenses compare to projections.
Finally, cash flow planning through the remainder of the 1980's will be a major concern for lenders and borrowers. A projected cash flow statement will greatly aid attempts to plan cash inflows and outflows for a farm business. Often the statement provides only a rough estimate of the cash position for the business, since marketing plans, prices, production levels, and even expenses often differ from what is projected. However, even though a projected cash flow is but a rough estimate--if compared to no estimate--it is a great help in planning ahead.
Frey, Thomas L. and Danny A. Klinefelter, 1980. Coordinated Financial Statements for Agriculture, Second Edition. Skokie, Illinois: Agri Finance.
Acknowledgment Appreciation is extended to Agri Finance, Skokie, Illinois, the publisher of Coordinated Financial Statements for Agriculture from which handout 1 and Figures 2 through 5 were adapted.
New 1/86
Cooperative Extension work in Agriculture and Home Economics, state of Indiana, Purdue University, and U.S. Department of Agriculture cooperating; HA. Wadsworth, Director, West Lafayette. IN. Issued in furtherance of the acts of May 8 and June 30, 1914. Purdue University Cooperative Extension Service is an equal opportunity/equal access institution.