The value of putting together a cash flow budget for your farm can be likened to a weather forecast.
Weather forecasts aren’t always accurate, and cash flow budgets don’t always work out as planned,” says Ron Van Nurden with Riverland Community College in Owatonna, MN. “But cash flow budgets help forecast what direction your business is headed.”
Start with good, accurate records, including crop production records, livestock records and accounting records, he told producers at Pork Academy, held the day before World Pork Expo, in Des Moines, IA.
“Including historical records will give you a long-term look at your business and will improve the accuracy of your cash flow budget by indicating trends,” Van Nurden adds.
Maintain a balance sheet that includes accurate inventories of fuel, feed and stored crops. “Also have accurate information about accounts payable,” he says.
For the operating line, accrued interest needs to be calculated and budgeted. Then list loan balances and loan repayment obligations. “Don’t forget personal debt, including credit cards,” he points out.
Then develop crop and livestock budgets to project direct costs.
“For crops, this means yields and cost per acre. For hogs, it’s cost/litter and pigs/sow/ year,” says Van Nurden. Base cost projections on five-year averages.
Be objective in estimating crop yields and hog production when developing the cash flow budget.
“Most farmers will overestimate production and underestimate expenses, but you handle this by using the five-year average,” he says. Once all projections have been entered, evaluate the cash flow.
“Don’t just put the cash flow together and make it look good for the banker,” stresses Van Nurden. “Lenders expect you to follow your cash flow budget as closely as you can.”
Finally, challenge yourself to beat your projected cash flow. “This cash flow tool is really important to help you project and plan for the future of your farm,” he concludes.