Being a farmer, regardless of the operation’s size comes with many challenges, from battling the elements to wrestling with pests to finding a market for the commodities we grow. Finding time to build a cash flow statement every year is a daunting task that we all need to invest on.

A cash flow statement is probably the most useful financial statement in the day-to-day management of any business. It is a listing of all the cash inflows and cash outflows during a certain period (week, month, quarter). The simplest way to do it is to use either a quarterly or a monthly cash flow statement that lists all of the cash flows for each period, as well as a summary column for the entire year.

Sections of a Cash Flow Statement

A cash flow statement has three parts: Cash Inflows, Cash Outflows, and Summary. The Cash Inflows section lists all of the cash that is coming into the business each period. For most farming operations, I will include cash inflows from off-farm jobs, custom work, and gifts, as well as the cash income from the farming operation. But DO NOT list any credit sales or accounts receivable on the cash flow statement UNTIL the cash is actually received.

The Cash Outflows section is also divided into the main cash expense categories for your operation. List only accounts payable or credit purchases when the cash ACTUALLY LEAVES your business, not when you incur the expense. Finally, don’t include non-cash expenses such as depreciation and unrealized capital losses.

The Summary section shows your net cash flow (inflows minus outflows) for each period, as well as information on your operating loan (balance outstanding, principal and interest paid each period, etc.).

The “bottom line” of a cash flow statement shows your ending cash balance for each period.

Uses of a Cash Flow Statement

Cash flow statements are a powerful management tool. From a financial analysis standpoint you can determine a lot of useful information from this statement. The main uses of a cash flow are

• Clearly seeing when you have cash coming into or leaving your operation.
• Easily identifying your top five cash outflows for cost control management.
• Identifying potential surplus or deficit periods throughout your operating year.
• Estimating the minimum operating loan that you should request from your lender.
• Determining when you will need to borrow from or repay an operating loan.
• Determining when to schedule your loan payments or insurance premium payments; and estimating whether you have enough cash to make capital purchases.

Having this information at hand can give you a clear picture of your financial condition and what your money is going towards. With this information at hand, you can improve your cash flow when money is moving in the wrong direction. Lets look at the sample cash flow below.

By taking the time to build this cash flow statement we discover the following:

• Quarter 4 has the highest cash inflows, due to corn sales.
• Annual payments on term loans scheduled for Quarters 1 and 2.
• Due to the cash deficit, you would need an operating loan of just under $100,000 cumulative operating loan balance in Quarter 2.
• Match the term loan payments to the quarters with a cash surplus.
• Schedule the loan payments for Quarters 3 or 4, or possibly quarterly payments.
• Purchase some of the crop supplies in Quarter 4 when more cash is available.
• Reduce the top 5 expenses such as purchased feed, fertilizer, interest, chemicals, and labor; and Increase income from custom work during Quarters 1 and 2, if possible.

For further information on this topic, please call the UF/IFAS Extension Hardee County office at 863-773-2164. We are here to help.

Further reading and tools

– Twelve Steps to Cash Flow Budgeting

– Twelve Period Cash Flow Budget

– Financial Performance Measures

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