Creating a Cash Flow Budget
Cash flow budgeting
Written by KEVIN BERNHARDT University of Wisconsin Extension
“Plan for profits and then work your plan.” That phrase best describes the value of cash flow budgeting. The planning function of management is one of the most important for the farm manager and completing a cash flow budget is an excellent tool for doing so.
The cash flow budget is a plan of how cash will be coming into the operation (cash inflows) and leaving the operation (cash outflows). The keyword is “cash.” If cash is not entering or leaving one’s pocket, then it does not go on the cash flow budget.
The cash flow budget provides three primary values for the farm manager.
- Forces the planning function of management.
- Provides a means of communicating the amount and timing of borrowing and investment needs with the lender.
- During times of low profitability, cash flow is a survival strategy.
Completing the cash flow budget requires that the manager plan ahead, know and/or estimate what they will raise, input needs, input costs, output prices, capital asset replacement, sales or purchases and other factors that could either provide or take cash from the business.
For the full article and access to cash flow tools, click here.
Last updated May 7, 2020