How Do I Monitor a Projected Cash Flow Statement?

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.

Summary

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.

Reference

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.

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.

Two additional lines are needed to account for any cash remaining at important hyperlink 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.

FIGURE 1. Projected Cash Flow Statement

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.