The year is already over half done – have you invested any follow up time into your cash flow? Monitoring the budget to actual on your cash flow projection is an important exercise to complete throughout the year. By doing so, you are making the cash flow projection a useful tool in your operation, not just an exercise for the bank each spring.
What to monitor on your cash flow:
- Budget to Actual Income – Have you hit the predicted marketing targets for your farm products? Has production also met your beginning of the year expectations? Have you had more or less total revenue than expected at this point in the year? Determining whether you are ahead or behind income projections sets the stage for decisions in the operation for the rest of the year and also impacts year-end purchases.
- Budget to Actual Expenses – Have expected expenses trended where you thought they would for the year? Did spring input costs fall in line with your expected budget? Have there been any unexpected costs that have bloated the expense portion of your cash flow? Knowing where your budget to actual expenses are at is the starting point. It is then important to consider upcoming expenses and how they compare to the original budgeted expenses from the beginning of the year. Are adjustments needed as you consider expense expectations?
- Budget to Actual Capital Planning – Were you planning to purchase, sell, or trade any capital assets during the year? How did those transactions play out versus your beginning the year planning? Were there any unexpected machinery purchases that happened? How was the purchase handled – with cash or financed? All of these are items to consider as you review your budget to actual information and look at future updates that may be needed to your plan for the remainder of the year.
- Budget to Actual Loans and Financing – Have all loan payments been made as expected? Have other credit plans happened as expected for the operation thus far in the year? How does the current balance of your operating loan compare to what was expected? Again, consider all of the angles to be sure the current financial position of your business is assessed and if any changes are needed.
- Budget to Actual Production – At this time it may be difficult to know if you have met or will meet production expectations for the products you produce in your operation. But, you likely can get a sense of what the crop looks like or if livestock production is meeting expectations. This production has an impact on the profitability of 2016 and 2017. Knowing if yields look better than expected or if there have been challenges in the growing year will allow you to be nimble and flexible in your planning for the remainder of the year.
Make the cash flow a useful tool for your operation throughout the year. Monitoring the status of your cash flow allows for better management decisions and increased profitability potential for your farming operation.
Source:umn.edu