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.
Month
Date

January
10
21

February
10
21

INCOMES
C/F
Salary
Gift
Gross inflow
EXPENSES
Pension
Car
Rent
Gross outflow
Net/10 days
Aggregate
capital/10 days
Cummulative
balance

farming is a business

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)
1

st

Quarter of expenditure
2nd
3rd
4th

Summati
on

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;

2

farming is a business

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:

farming is a business

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

farming is a business

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.
___________________________________________________________

farming is a business

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

$/ha

For 50 ha

Quarter of expenditure

Gross out put =

Add stock feed retention =
Gross output (total) =
Total variable costs =
Gross margin maize =
___________________________________________________________
TOBACCO CROP
yield estimate = ----------------------------price estimate = ----------------------------

farming is a business

Variable costs distribution

Item

$/ha

For 20 ha

Quarter 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

$/head

For 100
animals

Quarter of expenditure

farming is a business