Cash Flow

Of all the statements that comprise a farm business plan, the cash flow statement is often the most challenging one to prepare. This statement covers all aspects of farming, and to do a good job requires considerable amount of time, thought, and commitment. However, the time spent preparing this statement can also pay big dividends in charting the course towards a more profitable farm business. The cash flow projection simulates the anticipated financial activity that will flow through the farm bank account during the accounting period.

The cash flow projection simulates every dollar flowing into the bank account, and every dollar flowing out of the bank account, including both business and personal cash transactions and financial activity affecting the business bank account.

A cash flow projection is important because… It requires careful planning and thought in managing all aspects of the farm business, and allows the user to test ideas before they are put into practice. The cash flow projection addresses the question of whether or not the business plan will be feasible in the short run. Under some circumstances, it may be necessary to prepare a cash flow budget for more than one year to fully address feasibility issues and prolonged start-up costs.

The cash flow statement provides information as to whether or not an operating line of credit will be required during the production period, and if so, when and how much credit will be required. The cash flow budget also helps to confirm whether the farm can operate within an existing approved line of credit, and if not, how much more credit will be required and during what time period(s).