Cash Flow Budgets

January is the time for New Year’s resolutions and planning for what is to come the rest of the year. A quick google search will tell you some of the most common New Year’s resolutions are to lose weight, get organized, exercise more, and save money and improve finances. All of these resolutions take consistency and time. All of them also require a little bit of research, a way to prepare and tools. For example, if your resolution was to exercise more, maybe you need new tennis shoes or at home gym equipment. Tools are essential in helping individuals reach their goal and stay on track with their resolutions. In this blog we will be discussing cash flow budgets. Cash flow budgets are a tool you can take into 2025, that may help you!

What is a Cash Flow Budget?

A Cash Flow Budget can be one of the most useful financial statements available to a business. A cash flow budget lists all your monthly cash inflows and cash outflows for your business and personal finances. Another key aspect that makes cash flow budgets stand out is it shows when during the year these cash flows are occurring. Some businesses have regular cash flows and some are sporadic. Farms specifically tend to have seasonal cash flows. For example, if you own a pumpkin patch and corn maize you probably see an influx in inflows during October.

Is there anything I should do before I start working on my cash flow budget?

It is helpful to create an operating calendar prior to beginning your cash flow budget. In the operating calendar list out the specific activities that take place on your farm each month. This will help you determine when you can expect to see a high amount of both inflows and outflows. It is also just a great planning tool to visualize, what needs done, how much needs done and when it will occur. This makes it easier to determine what to expect the cash flows to be each month.

Where do I start with making my cash flow budget?

A potential starting point is to list out all sources of cash inflows from your farm and household. This can include things like non-farm income, sale of crops & livestock, custom work, etc. Then identify the months during the year you will see cash inflows. After you identify your inflow list do the same thing for outflows. Once again, include both your farm and household expenses. You can consider using the same categories that you use in whatever record keeping system you use or the same categories on a Schedule F tax form. However, if you decide to do that be sure you include things that may not be listed like loan principal payments, income taxes and family living expenses. The next step is to determine the total for each month and then you’re total for the entire year. This step involves your total monthly cash inflows minus your monthly cash outflows. You will then be able to see your month cash flow surplus or deficit.

Are you a Farm Credit of the Virginias customer? You can access the Member Portal for cash flow spreadsheet templates. Learn more!

How can I use my cash flow budget once it is complete?

• Develop a Business Plan
  • A cash flow budget helps managers and employees identify what items are taking place on the farm and when. It allows the farm to be more organized and prepared for items that will take place throughout the year and plan for these events. It can aide in business planning because it can help you determine when the best time is to make improvements to the farm or where those improvements need to be made.
• Determine need for operating capital for the upcoming year
  • By completing a cash flow budget you can identify how much money you may potential need for an operating loan and when you’ll be able to repay it. It will also show you when you will have access to working capital.
• Structure any new term loans you might need
  • A cash flow budget can help identify the maximum loan payments you might be able to afford based on your ability to generate cash. Another aspect is it can help you determine when to schedule payments, whether that be annually, quarterly, or monthly basis.
• Determine how much cash is available for salaries/wages
  • A cash flow budget can help you identify if you have enough cash available throughout the year to hire on new employees or increase the wages of current employees.
• Construct a cash basis income statement
  • You can use the total column in order to create a cash basis income statement. Use all the farm related cash inflows and cash outflows, but do not include non-farm cash flows. You will also need to remove things such as principal payments and income taxes from the income statement. You will also need to account for depreciation. Depreciation is a non-cash expense. However, for the most part your cash flow budgets total column is a close approximation of your net cash farm income. It is important to note, do not use cash basis income statements to make long term decisions, consider using accrual based statements to make long term decisions.

Like any resolution, creating a cash flow budget can be time consuming and intimidating. However, it is important to remember why people do New Year’s resolutions. Resolutions are items we want to improve upon to make a difference in our lives. A cash flow budget can help your business operation. Putting in the hard work can have a massive impact on your business!