Budget Analysis PDF

Budget Analysis DXP02704 —UN—23FEB11 INTRODUCTION DXP01793 —19—29SEP10 Farm business management has become more d...

Budget Analysis DXP02704 —UN—23FEB11 INTRODUCTION DXP01793 —19—29SEP10 Farm business management has become more difficult for your farm or ranch business shows up in your record and challenging due to rapidly changing production and book. Good planning equals increased returns. economic conditions. The job you do when you budget MD48206,0001088 -19-23FEB11-1/1 PLANNING A BUDGET What are available factors of production? As an owner or manager of a farm or ranch business, What is the best way to use available factors? you have control of how certain factors of production are What crop and/or livestock enterprises are possible? combined in the production process. In order to plan, What proportion of the land should be used for each you must know the amount and value of the four factors crop or livestock activity considered? of production. What labor is necessary? What capital is needed? Capital What management and production practices should be Labor used? Land Management There are some questions that farmers and ranchers must answer about the four factors of production to know how to plan their use in production. MM16633,00025BF -19-23FEB11-1/1 4-1 090117 PN=49  Budget Analysis WHAT IS BUDGETING? to your situation. Keep in mind that an experience from one year is only an indicator and does not ensure the A budget is a plan for action by the business. Budgets same experience will happen the following year. It is a include projections of income and expenses for all or part sign of good management to use more than one source of the business. The best format for a budget is a formal to verify data. written plan. Budgeting is a good management tool for anyone with limited experience. Also, an established LIMITATIONS OF BUDGETING farmer or rancher needs to have a formal budget to keep up with economic or production changes that may alter Budgeting takes time. You must search data sources for the profitability of an enterprise. information. You face the problem of using your time so that the returns from budgeting are greater than the cost There are a number of reasons for budgeting: of budgeting. Budgeting helps you plan for the useful life of assets. Budgets are constructed to show future actions. It is Budgeting is an excellent device for organizing. difficult to accurately predict prices and yields. Historical Budgeting is useful to estimate the amount of credit data provides guidelines. Forward contracting and needed from lending agencies. hedging techniques help estimate prices. Budgeting allows experimentation with possible Risks, both production and financial, can limit the outcomes before resources are actually committed. This is often referred to as a “what if” analysis. effectiveness of budget reliability. You must use your best judgment when you evaluate business situations. You Budgeting identifies cost and income items that might must always consider the element of risk when you make otherwise be overlooked. decisions about the future. Budgeting lets you refine an organization. There are three types of budgets discussed in this chapter. When determining budget estimates, managers tend to underestimate costs and overestimate income. Because Enterprise budgets are projected costs and returns costs occur at many different times, it is easy to overlook associated with one production process, usually for some of them. Any omission tends to hold cost estimates one production period. Examples of enterprise budgets down. Income, on the other hand, usually comes in at would include projected costs and returns per acre for fewer times, and is seldom overlooked. a crop and projected costs and returns per head for livestock. Some farmers or ranchers overestimate production. Few operators achieve the production levels which magazines Partial budgets are projected costs and returns advertise or which experiment stations achieve under associated with some change in the farm or ranch business. An example could be a farmer analyzing a highly controlled conditions. The point is, be careful when possible change from custom harvesting to ownership you budget. Get good information from more than one of his equipment. source and be realistic. Cash flow budgets are estimates of cash inflows and GUIDELINES FOR FARM AND RANCH BUDGETING cash outflows for the business for an entire production period. An example would be a monthly summary of Budgeting provides a systematic approach to planning. It projected cash receipts and cash disbursements for an enables you to analyze and compare alternatives. Use entire year. these guidelines to make a good farm or ranch budget: WHERE DO YOU GET BUDGET INFORMATION? 1. Decide what you want to analyze with the budget. 2. Decide whether to use enterprise or partial budgeting. All budgets prepared for planning should be based upon 3. Choose a time period for the budget. This can be a the best source of information available. A budget is only month, quarter, or year. as good as the data you use. When gathering data for use 4. Decide what data will be needed. in budgets, consideration should be given to the quantity, 5. Decide how many alternatives will be evaluated or price, and timing of the inputs required. Some sources of analyzed. information are: You may vary the sequence or the guidelines that you Actual farm or ranch records use, depending upon your situation. Area or state summary analysis UNDERSTAND THE BUDGETING PROCESS Sample budgets County averages and production data To understand the budgeting process, consider the Magazines and literature situation of Jim Brown. Jim is a high school student who Information from meetings and classes plans to attend college this fall. He is faced with many ways Neighbors of financing and paying for his school and living expenses. Computer networks Suppose Jim had $1500 per month available to meet his Use any or all of these sources to collect and verify data needs. Jim might develop a budget as shown in Table 1. for budgets. Review data to make sure it can be applied Continued on next page FB87413,000008A -19-03APR14-1/2 4-2 090117 PN=50  Budget Analysis Table 1 — Average Budget for One Month activities, or find an additional part-time job. Any of these Income changes would require a new budget. Because a budget Part-time work $600 is a formal written plan, it makes the decision maker think Savings (summer job) about every aspect of the decision. $400 Parents $500 Remember, the objective of budgeting is a dollar-and-cents ———— organization of the future. A budget provides Jim a plan Total $1500 he can use to wisely manage his money. Expenses STEPS IN DEVELOPING A BUDGET Room and board $800 Tuition and books $308 The steps Jim followed to develop his budget can be (prorated on a monthly adapted to the typical farm or ranch business: basis) 1. Appraise the business and family goals and objectives. Gasoline and car $160 expenses 2. Inventory the resources available for use in the farm Clothes and laundry or ranch operation. This inventory should consider $100 the available levels of land, labor, capital, and Haircut $12 management. Recreation $120 3. Select the physical data for inputs and outputs. ———— 4. Select the market prices for inputs and outputs. Total $1500 5. Calculate the expected costs and returns. Table 1 — Average Budget for One Month Farmers and ranchers must have realistic business and This is not the only budget Jim could use. It is one of many family goals and objectives. The budget is designed to alternatives. For example, Jim could save money by doing analyze these goals and objectives. Remember, the some of his own cooking. He could sell his car, dress budget is a comprehensive plan for the future use of farm less expensively, participate in less costly recreational resources. It establishes a direction for the business. FB87413,000008A -19-03APR14-2/2 4-3 090117 PN=51  Budget Analysis ENTERPRISE BUDGETS There are several parts or components of an enterprise Fertilizer (Nitrogen) — $0.54 per pound and 150 pounds budget. Each part will be discussed and illustrated. A per acre applied for a total of $81.00 per acre corn enterprise budget is shown to illustrate each of the Insecticides (#1) — $2.86 per ounce and 7 ounces per components. The corn budget projects the costs and acre applied for a total of $20.02 per acre returns for an acre of corn for one production period, Custom Hauling $0.20 per bushel and 150 bushels per usually a year. acre for a total of $30.00 per acre INCOME OR RETURNS The input quantities would typically be estimated based on the historical use of the inputs or any recommendations The first section of the enterprise budget shows projected from manufacturers, distributors, or regional experts. The revenue or returns based on a projected price and yield prices should be estimated by contacting local vendors per acre for corn. In Figure 1, the projected corn price is who provide the particular product or service $3.80 per bushel and the projected yield is 150 bushels per acre. The amount column is the projected price The input expenses associated with labor, fuel, and multiplied by the projected yield or $570 total revenue per repairs/maintenance are based on the machinery and acre ($3.80 x 150 = $570). equipment operations for an acre of corn. An individual owner/manager could use previous years’ records to OPERATING EXPENSES estimate these expenses. The budget software used The second section of the enterprise budget shows the by most agricultural extension services use a set of projected operating expenses for the corn production. engineering equations and typical machine use for a The expenses are separated into subcategories such given region to estimate these expenses. The machine as custom spray, gin and dry, fertilizers, herbicides, etc. operations, times over the field, projected speed, width Within each subcategory is an itemized list of the expenses of implements, and field efficiency are used to compute associated with that subcategory. The following are hours per acre and costs per acre. The hours per acre are examples of how to read the projected budget information: used to estimate labor costs. Fuel multipliers developed by agricultural engineers are used with the machinery Custom spray — $3.50 per acre and three applications data to compute fuel costs per acre. for a total of $10.50 per acre Continued on next page FB87413,0000090 -19-11APR14-1/9 4-4 090117 PN=52  Budget Analysis Figure 1 — An Illustration of Projected Costs and Returns for Corn Production (Estimates are on a per acre basis for a given year.) (1) (2) (3) (4) (5) Unit Price (dollars) Quantity Amount (dollars) REVENUE OR RETURNS Corn bu. $3.80 150 $570.00 TOTAL REVENUE $570.00 OPERATING EXPENSES CUSTOM SPRAY (Apply by Air) gal. $3.50 3 $10.50 GIN/DRY Dry Corn bu. $0.19 150 $28.50 FERTILIZERS Phosphate lb. $0.44 60 $26.40 Potash lb. $0.36 60 $21.60 Nitrogen lb. $0.54 150 $81.00 HERBICIDES #1 pt. $2.35 2 $4.70 #2 pt. $1.17 4 $4.68 #3 qt. $6.06 1.50 $9.09 INSECTICIDES #1 lb. $2.86 7 $20.02 #2 oz. $0.91 1.60 $1.46 #3 oz. $0.71 6 $4.26 SEED/PLANTS Corn Seed thous $1.55 30 $46.50 CUSTOM HARVEST/HAUL Corn bu. $0.20 150 $30.00 LABOR Harvesters hour $15.30 0.10 $1.53 Implements hour $9.60 0.20 $1.92 Tractors hour $9.60 0.56 $5.38 DIESEL FUEL Tractors gal $2.90 5.30 $15.37 Harvesters gal $2.90 1.40 $4.06 REPAIR & MAINTENANCE Implements acre $4.86 1 $4.86 Tractors acre $2.04 1 $2.04 Harvesters acre $2.00 1 $2.00 INTEREST ON OPERATING acre $14.02 1 $14.02 EXPENSES TOTAL OPERATING EXPENSES $339.88 RETURNS ABOVE OPERATING EXPENSES $230.12 BREAKEVEN PRICE ABOVE OPERATING EXPENSES $2.27 FIXED EXPENSES Implements acre $10.04 1 $10.04 Tractors acre $14.82 1 $14.82 Harvesters acre $9.10 1 $9.10 TOTAL FIXED EXPENSES $33.96 DXP05206 —UN—09APR14 ———— TOTAL EXPENSES $373.84 RETURNS ABOVE TOTAL EXPENSES $196.16 BREAKEVEN PRICE ABOVE TOTAL EXPENSES $2.49 Figure 1 — An illustration of projected costs and returns for corn production Continued on next page FB87413,0000090 -19-11APR14-2/9 4-5 090117 PN=53  Budget Analysis The total operating expenses projected for corn are Equation 1: Corn Price x Corn Yield – Operating Expenses for Corn computed by summing column five from custom spray = Returns above Operating Expenses through interest on operating expenses. The total ($3.80 (150 ($339.80 ($230.20) operating expenses are subsequently subtracted from ) bu.) total income to give an estimate of returns above total operating expenses. The total operating expenses for the Equation 2: Corn Price x Corn Yield – Total Expenses for Corn = Net Returns above Total Expenses corn budget in Figure 1 are $339.88 per acre, and the net returns above operating expenses are $230.12 per acre. ($3.80 (150 ($373.84) ($196.16) ) bu.) This is found by subtracting total operating expenses from total revenue ($570 - $230.12 = $339.88). The break-even price of corn necessary to just cover FIXED EXPENSES operating costs can be estimated by using equation 1 and setting it equal to zero (equation 3). Fixed expenses in an enterprise budget normally include depreciation, taxes, insurance, and interest. Just as in a Equation 3: Pc x Yc – OEc = 0 portion of the operating expenses section, these estimates Where: Pc is the price of corn are based on the machinery and equipment typically used Yc is the yield per acre of corn OEc is the total operating expenses per acre for corn in the production of corn. An individual owner/manager could use their records to estimate these expenses on an annual basis and then prorate the expenses to each Algebraically, equation 2 can be transformed into equation enterprise and the acres of that enterprise. As in the 4, which shows that the break-even price necessary operating expenses section, most agricultural extension to cover operating expenses is equal to dividing the budgets use engineers’ equations and estimate these operating expenses per acre by the projected yield. values to represent what is typical for a given region’s Equation 4: Pc x Yc – OEc = 0 production practices. A total for fixed expenses is shown at the end of the fixed expenses section. The total fixed Equation 5 takes equation 4 and uses the values from expenses for the corn budget in Figure 1 are $33.96 per the corn budget to estimate a break-even price of corn acre. of $2.27 per bushel to just cover operating costs. If you TOTAL EXPENSES AND NET PROJECTED RETURNS were using a spreadsheet, you could change the price of corn in the revenue section to $2.27 per bushel and Total fixed expenses are added to total operating expenses the estimated returns above operating costs would be to provide an estimate of total projected expenses (per zero. It is important to realize that $2.27 is also the acre) for corn production. The total expenses estimate is average operating expenses per bushel of corn since then subtracted from total revenue to give returns above the break-even is total operating expenses divided by total expenses. For the corn enterprise budget, the total projected yield. expenses are $373.84 per acre and the net projected Equation 5: $2.27 = $338.88 / 150 returns above total expenses are $196.16 per acre ($570 - $373.84 = $196.16). The same analysis can be applied to total projected BREAK-EVEN PRICES expenses per acre. In equations 3 through 5, total projected expenses per acre would be substituted for The net returns above operating expenses and total total projected operating expenses per acre. Equation 6 expenses from the corn enterprise budget are based on shows the estimate of a break-even price of corn of $2.49 the prices, yields, and application rates shown in the necessary to cover total projected expenses per acre. budget and as such represent a single estimate. Later The $2.49 is also the average total expenses per bushel in this chapter, we will discuss how to modify the budget projected for corn. to examine the possible consequences of changes in some of the values shown. With any given set of values Equation 6: $2.49 = $373.76 / 150 for prices, yields, and application rates, the budget can be used to estimate break-even prices necessary to just The data projections in Figure 2 can also be used to cover the operating and total expenses. A break-even project the returns above operating and/or total expenses price is the price necessary for the net returns above at different prices and yields. Figure 2 shows the projected operating expenses or total expenses to be exactly zero. returns above operating expenses at several different Before estimating the break-even prices, the formulas for projected prices and yields. For example, if the price of computing net returns above operating expenses and corn was $3.90 and the yield was 140 bushels per acre, total expense are shown in equations 1 and 2. the projected returns above operating expenses would be $210.02 per acre. It is important to note that the operating expenses per acre will differ with different yields due to the hauling costs being based on the yield. This topic will be covered later in this chapter. Continued on next page FB87413,0000090 -19-11APR14-3/9 4-6 090117 PN=54  Budget Analysis Figure 2 — Projected Net Returns Above Operating Expenses For Corn at Different Prices and Yields Corn Prices Corn Yields $3.30 $3.50 $3.70 $3.90 $4.10 $4.30 $4.50 $4.70 110 $38.72 $60.72 $82.72 $104.72 $126.72 $148.72 $170.72 $192.72 DXP05207 —UN—09APR14 120 $67.82 $91.82 $115.82 $139.82 $163.82 $187.82 $211.82 $235.82 140 $126.02 $154.02 $182.02 $210.02 $238.02 $266.02 $294.02 $322.02 160 $184.22 $216.22 $248.22 $280.22 $312.22 $344.22 $376.22 $408.22 180 $242.42 $278.42 $314.42 $350.42 $386.42 $422.42 $458.42 $494.42 200 $300.62 $340.62 $380.62 $420.62 $460.62 $500.62 $540.62 $580.62 Figure 2 — Projected net returns above operating expenses for corn at different prices and yields PROJECTED COSTS AND RETURNS management tool is the ability to estimate the prices for two or more enterprises that will give the same net returns Figure 3 shows projected expenses and returns per above operating and/or total expenses. Remember, the acre for soybean production and is in the same format net returns calculated on an enterprise budget are price as the corn enterprise budget. The soybean enterprise multiplied by yield minus expenses with expenses being budget projects gross revenue (returns) of $370 per either operating or total. Thus, to calculate prices for two acre, total operating expenses of $140.73 per acre, and enterprises where returns above expenses are equal, total expenses of $162.35 per acre. Returns above simply create an equation where the net returns are set operating expenses are $229.27 per acre and returns equal to each other. This is illustrated in equation 7. above total expenses are $207.65 per acre. An important Continued on next page FB87413,0000090 -19-11APR14-4/9 4-7 090117 PN=55  Budget Analysis Figure 3 — An Illustration of Projected Costs and Returns for Soybean Production (Estimates are on a per acre basis for a given year.) (1) (2) (3) (4) (5) Unit Price Dollars Quantity Amount REVENUE OR RETURNS Soybeans bu. $9.25 40 $370.00 TOTAL REVENUE $370.00 OPERATING EXPENSES CUSTOM SPRAY Apply by Air appl $4.50 1 $4.50 appl $3.50 2 $7.00 HERBICIDES #1 oz. $0.35 66 $23.10 #2 oz. $14.83 0.33 $4.89 #3 pt. $13.43 1.50 $20.15 INSECTICIDES Karate oz. $3.10 3.60 $11.16 SEED/PLANTS Soybean Seed lb. $0.66 50 $33.00 ADJUVANTS Surfactant pt. $1.55 0.20 $0.31 CUSTOM HARVEST/HAUL Haul Soybeans bu. $0.20 40 $8.00 LABOR Harvesters hour $15.30 0.09 $1.30 Implements hour $9.60 0.12 $1.18 Tractors hour $9.60 0.34 $3.24 DIESEL FUEL Tractors gal $2.90 3.07 $8.90 Harvesters gal $2.90 1.20 $3.49 REPAIR & MAINTENANCE Implements acre $2.16 1 $2.16 Tractors acre $1.20 1 $1.20 Harvesters acre $1.69 1 $1.69 INTEREST ON OP. CAP. acre $5.46 1 $5.46 TOTAL OPERATING EXPENSES $140.73 RETURNS ABOVE OPERATING EXPENSES $229.27 BREAKEVEN PRICE ABOVE OPERATING EXPENSES $3.52 FIXED EXPENSES Implements acre $5.17 1 $5.17 Tractors acre $8.78 1 $8.78 Harvesters acre $7.67 1 $7.67 TOTAL FIXED EXPENSES $21.62 DXP05208 —UN—09APR14 TOTAL EXPENSES $162.35 RETURNS ABOVE TOTAL EXPENSES $207.65 BREAKEVEN PRICE TO COVER OPERATING $4.06 EXPENSES Figure 3 — An illustration of projected costs and returns for soybean production Continued on next page FB87413,0000090 -19-11APR14-5/9 4-8 090117 PN=56  Budget Analysis Equation 7: Pc x Yc – OEc = Ps x Ys - OEs to be equal for both crops. A similar analysis could be Where: Pc = price of corn constructed using total expenses for each enterprise. Yc = yield of corn OEc = operating expenses for corn Figure 4 — Breakeven Prices Between Corn and Soybeans to Ps = price of soybeans Give Equal Net Returns Above Operating Expenses Ys = yield of soybeans Price of Soybeans Price of Corn OEs = operating expenses for soybeans $8.00 $3.45 $8.25 $3.52 Equation 7 can be algebraically transformed to equation 8, where the price of corn is the independent variable and $8.50 $3.59 is a function of the other variables. $8.75 $3.65 Equation 8: Pc = (Ps x Ys –VCs + VCc) / Yc $9.00 $3.72 $9.25 $3.79 Substituting values from the corn and soybean enterprise $9.50 $3.85 budgets into the right-hand side of the equation is shown $9.75 $3.92 in equation 9. $10.00 $3.99 Equation 9: $3.79 = (9.25 x 40 - $141.73 + $339.88) / 150 Figure 4 — Breakeven prices between corn and soybeans to give equal net returns above operating expenses From equation 9, $3.79 per bushel for corn will give the YIELD DEPENDENT EXPENSES same net projected returns above operating costs as $9.25 for soybeans. The net returns above operating Many times an enterprise budget is presented where expenses for soybeans are $229.27 at a soybean price of some of the operating expenses are dependent upon $9.25. If $3.79 was substituted for the corn price shown the projected yield in the budget. Referring to the corn ($3.80), the net returns above operating expenses will also enterprise budget in Figure 1, the custom hauling under be $229.27. Figure 4 shows the break-even corn price for operating expense is $0.20 per bushel of projected yield. several different soybean projected prices. In each case, With yield dependent operating costs, the calculation the soybean price is substituted into equation 9 to compute of break-even prices is more difficult. To illustrate the the corn price. For example, if the price of soybeans in computation of break-even prices when yield dependent the soybean enterprise budget was $9.75 per bushel, operating costs are present, an enterprise budget for the price of corn in the corn budget will have to be $3.92 broccoli is presented in Figure 5. per bushel for the net returns above operating expenses Continued on next page FB87413,0000090 -19-11APR14-6/9 4-9 090117 PN=57  Budget Analysis Figure 5 — An Illustration of Projected Costs and Returns for Broccoli Production (Estimates are on a per acre basis for a given year.) (1) (2) (3) (4) (5) Quantity Price Yield Amount REVENUE OR RETURNS BROCCOLI crtn. $7.00 450 $3,150.00 TOTAL REVENUE $3,150.00 OPERATING EXPENSES Unit Price Quantity Total PREHARVEST PHOSPHATE lb. $0.29 80 $23.20 HERBICIDE acre. $41.55 1 $41.55 SEED lb. $96.00 1 $96.00 IRRIGATION acln $1.33 36 $47.99 NITROGEN (LIQ) gal. $0.70 125 $87.50 INSECTICIDE appl $5.00 4 $20.00 PESTICIDE APPLY. acre $4.50 6 $27.00 FUNGICIDE appl $4.00 6 $24.00 FUEL acre $15.04 REPAIRS acre $5.92 LABOR hour $5.00 29 $145.03 Total PREHARVEST $533.23 HARVEST HARVEST crtn $1.60 450 $720.00 PACK & COUNT crtn $2.70 450 $1,215.00 MARKETING crtn $0.40 450 $180.00 Total HARVEST $2,115.00 TOTAL OPERATING EXPENSES $2,648.23 NET RETURNS ABOVE OPERATING EXPENSES $501.77 BREAKEVEN PRICE ABOVE OPERATING EXPENSES (YIELD = 400 CRTNS) $5.88 FIXED EXPENSES Total Machinery and Equipment acre $153.08 Land acre $90.00 DXP05209 —UN—09APR14 TOTAL FIXED EXPENSES $243.08 TOTAL EXPENSES $2,891.31 NET RETURNS ABOVE TOTAL EXPENSES $258.69 BREAKEVEN PRICE ABOVE TOTAL EXPENSES (YIELD = 400 CRTNS) $6.43 Figure 5 — An Illustration of Projected Costs and Returns for Broccoli Production In the broccoli enterprise budget, the operating expenses are subdivided into pre-harvest and harvest expenses. The total operating expenses can be estimated for any The pre-harvest expenses are constant regardless of the yield using equation 10 by simply putting the yield estimate yield; however, the harvest expenses are yield dependent. into the equation. For example, in Figure 5, a projected In general terms, the total operating expenses are the yield of 450 cartons per acre is used in the broccoli budget. sum of the two sections. In the harvest section of the The total operating expenses would be equation 11. operating expenses, the harvesting is $1.60 per carton, Equation 11: TOE = $533.23 + $4.70 x 450 packing and counting is $2.70 per carton, and marketing = $533.23 + $2,115 is $0.40 per carton for a total of $4.70 per carton for yield = $2,648.23 dependent operating expenses. Equation 10 shows the general form for calculating total operating costs. The calculation of a break-even price to cover operating costs can be computed as before; however, the operating Equation 10: TOE = Total Pre-harvest + $4.70 x Yield expenses are a function of yield, thus equation 12 is used. ($533.23) (450 crtn) Where: TOE is total operating expenses. Continued on next page FB87413,0000090 -19-11APR14-7/9 4-10 090117 PN=58  Budget Analysis Equation 12: Pb x Yb – (Total Pre-harvest + ($4.70 x Yb)) = 0 particular production conditions. For example, refer to the ($533.23) (450 crtn) corn budget presented in Figure 6. Columns 1 through 5 Where: Pb is the price per carton for broccoli are the same as presented in Figure 1; column six shows Yb is the yield per acre for broccoli in cartons the results of the following modifications. Assume that a manager believes his yield would be 175 bushels per Algebraically, equation 12 can be transformed to equation acre, his seed cost is $1.35 per pound, his hauling cost is 13, where Pb is the dependent variable as a function of $0.26 per bushel, and his fuel price is $3.10 per gallon. the other variables. Each of the changes is shown shaded in columns three Equation 13: Pb = (Total Preharvest + ($4.70 x Yield) / Yb and four. Column five shows the original totals as shown in Figure 1. Column six shows the new totals with the changes shaded. The result is new total returns of $665 At a projected yield of 450 cartons per acre, equation per acre and new total operating expenses of $350.72 14 would show the projected break-even price of $5.88 per acre, which results in net returns above operating necessary to just cover the operating costs per acre. If expenses of $314.28 per acre. The new break-even the yield was changed to 475 cartons per acre and $5.82 corn price to just cover total operating expenses is now was substituted for the price of broccoli, the net returns $2.00 per bushel. The fixed expenses would not change; above operating costs would be zero. however, the total expenses increase to $384.68 per acre Equation 14: $5.82 = ($533.23 + ($4.70 x 475)) / 475 and the net returns above total expenses is now $280.32 per acre. The new break-even price to just cover total MODIFYING AN ENTERPRISE BUDGET expenses is $2.20 per bushel. In a spreadsheet format on a computer, changes can be easily made and new Most budget presentations by agricultural extension calculations are immediate, which provides the manager services provide an extra column such that the individual the chance to examine many “what if” scenarios. manager can modify the budget to better reflect their Continued on next page FB87413,0000090 -19-11APR14-8/9 4-11 090117 PN=59  Budget Analysis Figure 6 — An Illustration of Projected Costs and Returns for Corn Production (Estimates are on a per acre basis for a given year.) (1) (2) (3) (4) (5) Your Estimate Unit Price (dollars) Quantity Amount (dollars) REVENUE OR RETURNS Corn bu. $3.80 175 $570.00 $665.00 TOTAL REVENUE $570.00 $665.00 OPERATING EXPENSES CUSTOM SPRAY Apply by Air (3 gal) appl $3.50 3 $10.50 $10.50 GIN/DRY Dry Corn bu. $0.19 175 $28.50 $28.50 FERTILIZER Phosphate lb. $0.44 60 $26.40 $26.40 Potash lb. $0.36 60 $21.60 $21.60 Nitrogen lb. $0.54 150 $81.00 $81.00 HERBICIDES #1 pt. $2.35 2 $4.70 $4.70 #2 pt. $1.17 4 $4.68 $4.68 #3 qt. $6.06 1.50 $9.09 $9.09 INSECTICIDES #1 lb. $2.86 7 $20.02 $20.02 #2 oz. $0.91 1.60 $1.46 $1.46 #3 oz. $0.71 6 $4.26 $4.26 SEED/PLANTS Corn Seed thous $1.35 30 $46.50 $40.50 CUSTOM HARVEST/HAUL Haul Corn bu. $0.26 175 $30.00 $45.50 LABOR Harvesters hour $15.30 0.10 $1.53 $1.53 Implements hour $9.60 0.20 $1.92 $1.92 Tractors hour $9.60 0.56 $5.38 $5.38 DIESEL FUEL Tractors gal $3.10 5.30 $15.37 $16.43 Harvesters gal $3.10 1.40 $4.06 $4.34 REPAIR & MAINTENANCE Implements acre $4.86 1 $4.86 $4.86 Tractors acre $2.04 1 $2.04 $2.04 Harvesters acre $2.00 1 $2.00 $2.00 INTEREST ON OPERATING EXPENSES. acre $14.02 1 $14.02 $14.02 TOTAL OPERATING EXPENSES $339.88 $350.72 RETURNS ABOVE OPERATING EXPENSES $230.12 $314.28 BREAKEVEN PRICE ABOVE OPERATING EXPENSES $2.27 $1.80 FIXED EXPENSES Implements acre $10.04 1 $10.04 $10.04 DXP05210 —UN—09APR14 Tractors acre $14.82 1 $14.82 $14.82 Harvesters acre $9.10 1 $9.10 $9.10 TOTAL FIXED EXPENSES $33.96 $33.96 TOTAL EXPENSES $373.84 $384.68 RETURNS ABOVE TOTAL EXPENSES $196.16 $280.32 BREAKEVEN PRICE ABOVE TOTAL EXPENSES $2.49 $2.20 Figure 6 — An illustration of projected costs and returns for corn production FB87413,0000090 -19-11APR14-9/9 4-12 090117 PN=60  Budget Analysis PARTIAL BUDGETING The typical partial budget usually consists of a seven-part Partial budgets are projected costs and returns associated plan. The seven parts are: with some change in the business operation. Partial Column One Column Two budgeting estimates the economic effects of adjustments Negative Effects Positive Effects in the farm or ranch business. With partial budgeting, you 1. Additional Costs 4. Additional Returns assume many aspects of the business are constant. You are only interested in the parts of the business that will 2. Reduced Returns 5. Reduced Costs change due to the adjustment. The basis of the concept is 3. Total Additional Costs and 6. Total Additional Returns and to analyze the impact of a proposed change in an already Reduced Returns Reduced Costs developed plan. 7. Net Change in Income (Line 6 minus Line 3) Many changes that do not require a complete AN APPLICATION OF PARTIAL BUDGETING reorganization are possible on a farm or ranch. You can use resources in a variety of ways. For example, you can Bob Turnell plans to use partial budgeting to estimate vary use depending upon changes in input or product the effect of grazing out versus harvesting a wheat grain prices. Partial budgets are also useful in evaluating crop. He currently has a growing wheat crop that can be changes such as: harvested and sold as grain or could be grazed for weight gain on stocker steers. He must decide “Should I graze Expanding an enterprise the growth through time of wheat maturity and sell steers, Alternative enterprises or harvest the wheat crop and sell grain?” Bob has data Changing production practices on prices and yields from enterprise budgets for wheat Buying new equipment or machinery and stockers supplied by the state land-grant university Partial budgeting is based on the principle that a change and modified for his specific production conditions. Listed in the organization of the business will have one or more below are price and yield estimates for the applicable of the following effects: period. Positive Effects Bob's budget is prepared on a per acre basis with a stocking rate of one steer per acre of wheat. Reduced Costs (RC): The change will eliminate or Expected beginning weight of steers is 570 pounds with reduce some costs. Reduced costs are those costs that a projected price of $1.02 per pound. will not occur if the change is made. Any cost that does Expected ending weight of steers is 760 pounds with a not change will not be included in the partial budget. projected price of $0.98 per pound. Additional Returns (AR): The change will cause some Projected wheat yield if harvested for wheat is 30 additional returns to be received. Additional returns are bushels per acre. those returns that will occur if the change is made. Any Estimated wheat price at harvest is $5.00 per bushel. returns that do not change will not be included in the Interest on capital is $1.87 per steer. partial budget. Supplemental livestock feed is $1.14 per steer. The positive effects are the sum of reduced costs plus Labor cost is $3.39 per steer. additional returns (RC + AR). Vet fees and supplies are $3.15 per steer. Negative Effects Custom combining for wheat is $30 per acre. Custom hauling for wheat is $0.25 per bushel. Additional Costs (AC): The change will cause some The positive effects of this change include additional additional costs to be incurred. Additional costs are returns (revenue) and reduced costs (expenses). The those that will occur if the change takes place. additional revenue would be the revenue realized when Reduced Returns (RR): The change will eliminate the stocker steers are sold for $744.80 (760 pounds or reduce some returns. Reduced returns are those at $0.98 per pound). The reduced costs would be the returns that will not occur if the change is made. custom combining ($30 per acre) and custom hauling The negative effects are the sum of additional costs ($7.50 per acre) that Bob will not have to pay with the plus reduced returns (AC + RR). graze-out alternative. Total benefits, which are additional The net change between positive and negative economic returns plus reduced costs, are $782.30 for this partial effects is an estimate of the net effect of making the budget analysis (Figure 7). proposed change. It is calculate by subtracting the negative effects from the positive effects. A positive net change in income indicates a potential increase in income due to the change. A negative net change in income indicates a potential reduction in income if the change is made. Remember, the net change is the difference between the original alternative and the proposed change; it is never an indication of overall profit of either alternative. Continued on next page FB87413,0000091 -19-07APR14-1/3 4-13 090117 PN=61  Budget Analysis Figure 7 — An Illustration of a Partial Budget Analysis Proposed Change: To switch from harvesting wheat and selling grain to grazing steers. (Estimates are on a per acre basis assuming one steer per acre) 1. Additional Costs (AC) 4. Additional Returns (AR) Steer value on March 1 570 lbs. x $1.02 $581 Interest on capital $1.87 Steer value on May 15 Supplemental feed $1.14 760 lbs. x $0.98 $744.80 Labor $3.10 Vet $2.50 Subtotal $590.01 Subtotal $744.80 2. Reduced Returns (RR) 5. Reduced Costs (RC) Wheat production Custom combining $30 DXP05211 —UN—09APR14 30 bushels x $5.00 per bushel $150.00 Custom hauling $0.25 per bu. x 30 bu. per acre $7.50 Subtotal $150.00 Subtotal $37.50 3. Total Additional Costs and Reduced Returns (AC $740.01 6. Total Additional Returns and Reduced Costs $782.30 + RR) (AR + RC) 7. Net Change in Income (Line 6 minus Line 3) = $42.29 Figure 7 — An illustration of a partial budget analysis The negative effects of this change include reduced returns be to ask: What is the price necessary to justify either of (revenue) and added costs (expenses). The reduced the options, given the estimates? For example, based revenue is the value of the wheat if harvested and sold. on a projected wheat yield, wheat price, average daily This value is projected to be $150 per acre (30 bushels at gain, stocking rate, etc., what ending price for steers $5.00 per bushel). The added costs of this decision are the would make the graze-out alternative the best choice? To purchase of the stockers for $581 per head (570 pounds at analyze this question, it is important to assume that the net $1.02 per pound) and the miscellaneous costs of owning change in income must be positive before the graze-out the steers (interest, feed, labor, and veterinarian supplies). option is the best choice. The break-even price of steers The total negative effects, added costs plus reduced would be the price that would result in a net change in returns, for this alternative are projected to be $740.01. income of zero, which would imply that any higher price would result in a positive net change. A simple method The net change in income is calculated as the difference to compute break-even values that would result in a net between the positive effects and the negative effects. change of zero is to set the positive and negative effects Thus, the total negative effects of the change, $740.01, equal to each other as shown in equation 15. are subtracted from the total positive effects of the change, $782.30, which give a net change in income of $42.29. Equation 15: AC + RR = AR + RC Since the grazing rate is one steer per acre, this change is per steer and per acre. The net change in income should Subsequently, input the price of steers as a variable and not be interpreted as a measure of profit; rather it is the treat the other estimates as constants in the equation. difference between the alternatives based on the cost This is summarized in equation 16: and return projections. Both alternatives might or might Equation 16: $590.01 + $150 = (760 x Ps) + $37.50 not be profitable. Since the partial budget represents a change from the typical alternative to the new proposed Where Ps is the ending price for steers alternative, a positive change would indicate to make the change while a negative change would indicate to stay Equation 16 can be algebraically transformed to give with the original alternative. equation 17 and subsequently equation 18 which shows the breakeven price to be $0.92 per pound for the ending The results of this partial budget analysis would indicate price of steers. Interpreted, this means that if $0.92 per that Bob would realize an additional $42.29 per acre if he pound was used in the additional returns section of the decided to purchase steers and graze his wheat. This partial budget, the net change in income would be zero. would suggest a change from how Bob was handling his Thus, a price per pound for steers above $0.92 would wheat in previous years. give a positive net change in income and would indicate a decision to make the change. BREAK-EVEN ANALYSIS FROM PARTIAL BUDGETING Equation 17: Ps = ($590.01 + $150 - $37.50) / 760 The net change in income shown in the partial budget Equation 18: Ps = $0.92 (rounded to nearest cent) analysis table is based on the prices, yields, and costs estimated in the partial budget. A normal question would Continued on next page FB87413,0000091 -19-07APR14-2/3 4-14 090117 PN=62  Budget Analysis to estimate the economic consequences for a change Substituting $0.92 for the ending price of steers and in some part of the farm or ranch operation. The partial re-calculating the partial budget would give a net change budgeting concept is a step-by-step process for identifying in income of zero (note the price of steers is rounded to all the costs and returns that change due to alterations in nearest cent). Therefore, if Bob could realize any ending one or more of the production processes. Once these price of steers above $0.92 per pound, the partial budget costs are identified, they are weighed against each other would show a positive difference and Bob would realize to estimate the economic consequences of the change. more income per acre by choosing the graze-out option. Remember that the results can only be as good as the Partial budgeting is a simplified procedure that helps data. Be careful when preparing estimates for various farmers and ranchers make decisions. This analysis is categories. Test several values for yields and prices for not designed for total farm or ranch planning, but rather their affect on the ultimate outcome. FB87413,0000091 -19-07APR14-3/3 4-15 090117 PN=63  Budget Analysis CASH FLOW BUDGETING you communicate your credit needs and your loan repayment ability (debt service) to a possible lender. The cash flow budget projects money flow, receipts and Your management strategy and when you will repay the expenditures, for a specific time. This is usually a year; it borrowed money is the kind of information a lender relies can be planned in days, months, or quarters. Generally on to determine your ability or capacity to repay a loan. for farms and ranches, the cash flow budget is projected In short, this information lets you and your lender work on a monthly basis. In this chapter the projected cash together as a team through good and bad farm and ranch flow is illustrated on a monthly basis. economic situations. Most farm and ranch businesses do not have an even A cash flow projection provides a number of advantages flow of receipts and expenditures, rather receipts and to the farm or ranch business. expenditures can vary significantly by month. In many instances, the receipts are realized only in part of the It shows the operator when excess cash will be year. Furthermore, often the majority of the expenses are available, and when cash deficits will occur. not in the same months as the receipts. When receipts It provides for budgeted loans that are borrowed only and expenditures; are uneven, it is important to create for the periods through which they are required. a cash flow projection to plan the management of funds It provides a technique for combining personal and farm and to estimate when fund surpluses and deficits might or ranch financial needs for the next period. occur. Managing funds in this way can alert a manager as It lets you plan purchases. to when borrowed funds will be needed and when excess It allows comparison of the cash flow projection with funds might be available for paying debts or making the cash flow summary to record actual performance capital purchases. against the advanced planning. Cash flow planning has become an increasingly valuable It helps you evaluate the relationship of your short-term debt to your repayment capacity. tool that allows the manager to evaluate the cash position It lets the manager immediately see the cash position of a farm or ranch business. Increased amounts of capital throughout the year. are required to operate businesses today. This increase is brought about by new technology, substitutions of A cash flow projection helps determine when cash will machinery for labor, inflation, and consolidation. This be required for production expenses, when major capital trend also increases the debt load of the individual farm investments will be made, and how they will be financed. and causes a greater amount of financial risk to be The projection indicates whether investments can be paid assumed by the operator and the lending institution that for with cash on hand or if it is necessary to borrow funds. provides capital. When money is borrowed, the plan indicates whether or not there will be adequate cash to meet the repayment A cash flow projection is a record of the amount and terms of the lender. If the terms are met, repayment timing of all cash inflows (dollars available) and cash schedules are set up to coincide with cash surplus outflows (dollars used) that occur or will occur throughout months. If not, some revision of the plan will be necessary. the planning period. It enables you to compare projected dollar flows to those that actually happened the previous There are a few disadvantages that must be dealt with year. When the two cash flow statements (summary of when you work on the cash flow projection. actual and projected) do not agree, you must analyze the differences. The cash flow projection forces you to make The farm or ranch manager must devote time to the detailed production plans. For example: collecting and projecting of data. Projected prices are difficult to estimate. What enterprises will I produce next year? Borrowing rates may fluctuate. How much of each enterprise will I produce? Family and business consumption of resources may What production techniques will I use for each vary. enterprise? The entire cash flow projection plan needs constant What are the likely prices that I will receive for the review and revision. products of each enterprise? Expect and be prepared to deal with these disadvantages When will I market those products? while you work. Remember, make a decision with the When will I pay for my operating expenses? best data available as your guide, and be ready to accept How much money is needed from my lender to meet the risk. my capital requirements? How much and when must I borrow money for production expenses? When will I need to borrow for new capital investments? When will I be able to repay the loan? The answers to these questions help you make very important management decisions for your farming or ranching operation. Also, such information lets Continued on next page OUO1023,0002D93 -19-25FEB11-1/2 4-16 090117 PN=64  Budget Analysis - Hired labor, machine hire CASH FLOW FORM COMPONENTS - Real estate and personal property taxes attributed to the farm business A cash flow indicates the ability of a business to generate - Other expense items such as insurance, utilities, cash inflows and outflows. Therefore, a cash flow budget rents, leases, freight, and trucking form should include all sources of cash inflow and of cash - Purchase of livestock for resale outflow. CASH FLOW INFLOWS INCLUDE: Capital expenses - Purchases of breeding stock, machinery and Farm equipment, buildings, and land Operating receipts Scheduled term debt payments - Sales from various enterprise activities - Principal payments on loans - Sales of livestock purchased for resale - Interest payments on loans - Government payments Non-Farm - Other farm income Sale of capital items Family living - Breeding livestock Personal income tax and self-employment tax - Machinery and equipment Withdrawals to personal savings - Buildings and land Other investments A CASH FLOW SUMMARY INCLUDES: Inflow from loans Non-Farm Cash difference Beginning cash balance Off-farm earnings and income Cash position Income from other investments Money borrowed Projected payments of principal and interest on CASH FLOW OUTFLOWS INCLUDE: operating loan Farm Ending cash balance Accumulated borrowing Operating expenses - Fertilizer, chemicals, feed, seed, supplies, vet medicine, repairs, fuel, etc. OUO1023,0002D93 -19-25FEB11-2/2 4-17 090117 PN=65  Budget Analysis DEVELOPING A CASH FLOW PROJECTION funds that will be involved in the transaction. Include cash received from loans as inflow from loans. Alex and Mindy Kendalls meet with Mr. Hatchel, their banker. After Mr. Hatchel explains cash flow summaries 4. Determine scheduled term debt payments. and projections, they agree that a cash flow analysis is very useful and it will allow them to see how the Term debt refers to scheduled principal and interest complete cash position of the farm business looks over payments on loans generally more than one year. the next twelve months. They are still unsure about how Monthly, quarterly, or annual payments on farm to construct the cash flow. Mr. Hatchel explains that machinery and land are examples of term debt. some basic steps should be followed when a cash flow Payments of both principal and interest that are due projection is constructed: on existing loans should be recorded in the month in which they will occur. A loan amortization schedule for 1. Plan your crop and livestock enterprises. each loan is useful for determining these payments. This ensures your projection does include a payment Decide what crops and what livestock enterprises for these commitments. you are going to produce. Decide on the technology that will be used, and the operating inputs that will 5. Estimate non-farm earnings. be required to use that technology. Estimate your variable and fixed costs and your revenue for those Non-farm earnings include wages and salaries enterprises by preparing enterprise budgets. The cash earned off the farm. They also include income from expenses projected on your enterprise budgets are investments such as interest income, royalty income, categorized by months. Subsequently, the monthly or even expected inheritances. Such earnings are entries are multiplied by the number of units to be included in the month they are expected to occur. produced (acres, head, etc.) and then recorded on 6. Estimate your family living expenses and taxes. the projected cash flow. Family living expenses are estimated monthly 2. Estimate your farm income and expenses per month. according to what is planned for the family. If vacations Developing enterprise budgets provides a logical are planned, then the cost of those vacations must be format and procedure for estimating expected income included in the month they will occur. Holidays that and expense needs for a year. Enterprise budgets require additional expenses should also be considered provide structure for analyzing costs and returns for and planned for. Income, self-employment, and individual enterprises, but they can also provide a personal property taxes that are not part of the farm basic structure for looking at costs and returns for business should be estimated and planned for at the developing cash flow projections. Once enterprise time they are to be paid. Family expenses may also budgets have been developed, you must estimate include savings and/or retirement plans, non-farm when income will be received and expenses incurred. investments, or any other expense that is not part of This is usually done on a monthly basis. You must the farm business. now decide when the products will be sold, project the The cash flow summary of the previous year can be prices you will receive, and determine the month(s) the useful. If you have the same enterprise combinations income will be received. You must now estimate when as the previous year, you may want to compare the the inputs (expenses) will be needed or purchased, cash flow summary with the cash flow projection. You when the machinery operations will be done, and can make some adjustments for expected prices to be estimate in which month expenses will occur. When paid and prices to be received and review the timing you develop this information, you will have an of the proposed inflows and outflows. estimated monthly flow of cash income and cash expenses for the enterprises you expect to produce. The table below shows a projected cash flow for Alex You may also have farm income or expenses that may and Mindy Kendalls’ farm business. The Kendalls’ not be included in the enterprise budgets. Examples enterprises include corn, soybeans, beef cattle, and might include government payments, CCC loans, fees stocker steers. Monthly sales projections are based for educational classes and materials and/or advisory on their enterprise budgets and the total acres or services, and farm magazines. head in the enterprise. Crop sales shown in February, March, and May would typically be grain sold from 3. Estimate the timing of sales and purchases of capital storage, while sales in July, August, and September items. would be grain sold at harvest. You should decide such things as when you will purchase machinery, when you will need funds to construct a new barn, when you will need funds to purchase new breeding stock, or when you will trade pickups. Include these items in the cash flow projection according to when they will occur and the Continued on next page FB87413,0000092 -19-24JUL14-1/5 4-18 090117 PN=66  Budget Analysis Figure 8a — A Projected Cash Flow for the Kendalls’ Farm Business JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL CASH INFLOWS Operating Expenses Crop sales 47,500 22,000 25,500 195,000 105,500 65,000 460,500 Market live- 0 0 65,000 0 0 0 0 0 24,500 115,500 0 0 205,000 stock Ag program 0 0 0 0 0 0 0 0 0 0 15,500 10,500 26,000 payments Custom hire 0 0 0 0 1,000 0 15,000 4,000 0 0 0 20,000 Inflow from 0 0 0 0 0 0 65,000 0 0 0 0 0 65,000 Loans Capital 0 0 0 0 0 0 0 0 4,194 0 0 0 4,194 Sales Breeding 16,000 16,000 livestock Machinery & 0 equipment Non-Farm 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 42,000 Income TOTAL 3,500 51,000 90,500 3,500 30,000 3,500 278,500 113,000 113,194 119,000 19,000 14,000 838,694 CASH INFLOWS CASH OUTFLOWS Operating Expenses Seed and 0 0 0 12,500 13,500 14,250 40,250 plants Fertilizers 0 0 0 33,500 33,500 32,500 0 0 0 0 0 0 99,500 and lime Chemicals 0 0 0 0 0 8,350 13,450 0 0 0 0 0 21,800 Feed 500 500 500 500 500 500 3,500 3,500 3,500 0 0 0 13,500 supplement Feed grain & 3,500 3,500 3,500 3,500 3,500 3,500 1,500 1,500 1,500 1,500 1,500 1,500 30,000 roughage Vet/breed- 150 150 150 150 150 150 600 600 600 600 600 3,900 ing/medicine Custom hire 0 0 0 1,055 2,110 1,055 400 400 400 400 400 400 6,620 Hired labor 0 0 0 750 750 750 0 1,100 1,100 1,100 0 0 5,550 Marketing 340 340 340 340 340 0 621 621 1,243 1,850 1,850 621 8,506 and trucking Gas/fuel/oil 1,450 1,450 3,745 9,500 6,250 6,250 2,200 6,500 850 850 850 0 39,895 Repairs 2.230 2,230 2,230 2,230 2,230 2,230 2,230 2,230 2,230 2,230 2,230 2,550 27,080 Rent and 51,200 51,200 0 0 0 0 6,500 6,500 6,500 6,500 6,500 134,900 leases Insurance- 0 0 0 0 11,500 0 0 0 0 0 0 8,500 20,000 farm and crop Supplies 600 600 600 600 600 600 600 600 600 600 600 600 7,200 Utilities 350 350 350 350 350 350 450 450 450 450 450 450 4,800 DXP05212 —UN—09APR14 Miscella- 400 400 400 400 400 400 400 400 400 400 400 400 4,800 neous Livestock 0 0 45,500 75,000 25,500 146,000 Purchased for Resale Capital 0 0 0 0 0 0 70,000 0 0 0 70,000 Purchases Figure 8a — A projected cash flow for the Kendalls’ farm business Continued on next page FB87413,0000092 -19-24JUL14-2/5 4-19 090117 PN=67  Budget Analysis Figure 8b — A Projected Cash Flow for the Kendalls’ Farm Business JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL Term Debt Payments Principal 0 0 0 0 0 0 37,895 0 0 36,691 0 74,586 payments Interest 0 0 0 0 0 0 9,659 0 0 0 8,567 0 18,226 payments Non-Farm 0 Expenses Income tax 7,500 7,500 7,500 7,500 30,000 and SE tax Family living 5,500 5,500 5,500 5,500 5,500 5,500 5,500 5,500 5,500 5,500 5,500 5,500 66,000 TOTAL 73,720 66,220 17,315 123,875 156,180 101,885 163,005 29,901 24,873 29,480 66,138 20,521 873,113 CASH OUTFLOWS SUMMARY OF PRO- JECTED CASH FLOW Cash 70,220 15,220 73,185 120,375 126,180 98,385 115,495 83,099 88,321 89,520 47,138 6,521 difference for month Beginning 7,500 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 12,190 5,000 cash balance Cash 62,720 10,220 78,185 115,375 121,180 93,385 120,495 88,099 93,321 94,520 34,948 1,521 position Money 67,720 15,220 120,375 126,180 98,385 39,948 6,521