A HANDOUT ON CASHFLOW BUDGETS FOR FARM ENTERPRISES

farming is a business

A HANDOUT ON CASHFLOW BUDGETS FOR FARM ENTERPRISES

A cash flow budget is a summarised forward projection of the inflow and outflow of money over a specific period of time; the time in question could be monthly, quarterly (3 months) or annually.

It is ideally a financial statement showing the pattern of incomes and expenses within a specified time factor. Cash flows whose duration is one month or less are best suited for personal accounts.

For example, Mr Machiridzas Monthly Cashflow statement showing the pattern of income and expenditure for the month of January and February, 2002.

MonthJanuaryFebruary

Date 1102111021

INCOMES

C/F

Salary

Gift

Gross inflow

EXPENSES

Pension

Car

Rent

Gross outflow

Net/10 days

Aggregate capital/10 days

Cummulative balance

Fill in this table given that;

For the income- he had $400 as C/F, $2 000 as salary on 21st of every month, a gift of $400 on the 1st of February.

For the expenditure- he paid $200/every 10 days, paid car rent on 10th Jan., paid rent on 21st of Jan. and 21st of February at $300 each month.

The cash flow will also help to show the necessity to have an overdraft i.e. how much, for how long and how large the overdraft in order to cater for shortfalls or emergencies during the cash flow period.

In the example below $23 000 would be needed for the initial 6 months by Mr Machiridza.

Mr Chatikobo Farm Pvt (Ltd)

Cash Flowbudget For A Maize Crop (10ha)

Quarter of expenditure

1st 2nd 3rd 4th Summation

Cash out flow details

Planting

Top dressing

Reaping

Interest

Capital repayment

Total out/quarter

Cash inflow details

Maize grain sales

Aggregate /quarter

Cumulative balance

Fill in the table given that;

For cash out:- planting expenses -$1500 in the 1st quarter, top dressing in the 2nd quarter at $5000, reaping done in the 3rd quarter at $5000, interest stood at $3000 each in the 2nd and fourth quarters respectively and repayment was made in the fourth quarter at $10 000.

For the cash inflows:- grain was sold at a total of $45 500 in the 3rd and 4th quarters.

Your cumulative balance should be able to show the $23 000 needed for the first 6 months.

A realistic cash flow will show:

1. peak cash requirement, indebtedness, the amount and duration.

2. reveal opportunities for manipulation of purchase and sales to the best advantage and assist in keeping peak cash requirements to a minimum i.e. keeping overdraft as low as possible.

3. indicate the necessity to alter proposed production programme if the cash requirements exceeded the credit facilities offered i.e. suggests ways of rearranging purchases and schedule payments to minimise borrowing;-repayments only when large cash inflows are expected.

4. show if and how long credit finance is required for the working capital (fluid capital) I. E. bank loans, hire purchase finance etc. interest can then be calculated. Banks or lending agencies usually give advice by spotting potential weaknesses in the business by use of a complete cash flow.

5. allows the farmer to exercise budget control and compare the expenditure and income.

The effectiveness of a cash flow is based on the assumption that inflation of costs and prices will be equal and zero i.e.

(monetary value of cost = monetary value of prices- all within the specified time).

WORKING EXAMPLE:

Mr James owns Fairview farm on which he runs the following enterprises:

1. 50 ha maize

2. 20 ha of tobacco.

3. 100 weaners purchased in September every year and sold fat expens in August the same year.

Produce a complete gross margin budget and quarterly cash flow budget for this farm for the season 2000/2001 given the following details.

Details for maize:

Cropping area- 50 ha

Estimated yield- 7t/ha

Estimated GMB price $5 200/t

Stock feed retention- 100t at $4000/t.

Estimated variable costs/ha:

Labour- $10 080

Tractor operating $5 694

Seed- $6 250

Fertiliser- $7 800

Insecticides-$2 000

Others- $1 000

___________________________________________________________

Details for tobacco

Cropping area- 20 ha

Estimated yield 2,7t/ha

Estimated price- $100/kg

Estimated variable costs/ha

Labour- $15 500

Tractor operating- $28 500

Seed- $1 000

Fertilisers- $18 000

Fumigants and insecticides- $3 000

Insurance-$2 500

Packing- $10 000

Selling charges- $5 000

Transport- $9600

Others- $6 000

___________________________________________________________

Details for livestock

100 weaners purchased in September 2000 at $10 000 per head and sold fat expens in August 2001 at $16 000 per head (estimate).

Estimated variable costs (for 100 animals)

Labour- $21 900

Tractor operating- $4 000

Purchased feed- $120 000

Home grown feed- $21 600

Vet/dip/medicines- $50 000

Transport- $12 000

___________________________________________________________

Fixed costs details

Labour- $20 000

Tractor operations- $40 000

Building repairs- $15 000

Rates for water and power- $4000

Licences- $2 000

Post and telephones- $2 500

Bank charges- $6 000

Depreciation- $40 000

___________________________________________________________

Capital situation

Long term loan- $150 000

Interest rate- @ 67% p.a. for 10 years.

Annual payment- $15 000

Opening bank balance- $200 000

___________________________________________________________

Private drawings

$35 000 of which $15 000 is for domestic labour.

___________________________________________________________

Taxation

Income tax due 2000/2001 season is $100 000 payable in the third quarter.

___________________________________________________________

Breakdown of the year

Financial year is 1st October, 2000 to 30 September, 2001.

First Quarter- October December

2nd Quarter- January March

3rd Quarter- April June

4th Quarter- July September.

STEP 1. GROSS MARGIN CALCULATIONS

MAIZE CROP

yield estimate = -----------------------------

price estimate = ----------------------------

Variable costs distribution

Item $/haFor 50 haQuarter of expenditure

Gross out put =

Add stock feed retention =

Gross output (total) =

Total variable costs =

Gross margin maize =

___________________________________________________________

TOBACCO CROP

yield estimate = -----------------------------

price estimate = ----------------------------

Variable costs distribution

Item $/haFor 20 haQuarter of expenditure

Gross out put =

Total variable costs =

Gross margin tobacco =

___________________________________________________________

LIVESTOCK

100 weaners purchased in September, 2000 @ $10 000/head

= $

Sold fat in August, 2001 @ $16 000/head

= $

Gross output = $..

Variable costs distribution

Item $/headFor 100 animalsQuarter of expenditure

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