University of Maryland Extension

Example farm cash flow

Author: 
Dale M. Johnson, Extension Specialist, Farm Management

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Figure 4 illustrates the cash flow for the farm in the previous example. A link to download editiable versions of these spreadsheets is at the bottom of this page. The income statement is also included to contrast the similarities and the differences in these two financial statements. Compare these financial statements with the formulas in figure 3.

The second column of the cash flow shows the cash flow for last year. At the beginning of the year there was a cash balance of $500. The sales income and production expenses are the same as they are on the income statement. But notice that depreciation for the high tunnel and equipment is not included in the cash flow because it is a non-cash allocation of these capital purchases. Notice also that there are loan principal payments for a loan that was received to purchase the high tunnel two years ago.

At the end of the year, the cash balance was $1,400, $900 more than at the beginning of the year. This does not say anything about the profitability of the farm. The income statement shows that last year’s profits were $1,000. However, if a business is profitable, it is more likely to have a positive cash flow.

The farm’s cash flow for each quarter of the coming year and the total for the year is projected in columns 3-7. The cash flow reflects the increase in income and expenses. Notice that the income and expenses vary across each quarter. For example, the CSA subscription payments are received in the first quarter while most of the on-farm market sales are in the second and third quarters. Most of the seed, fertilizer and compost, and pest management supplies are incurred during the second quarter while other expenses are incurred evenly across the quarters. In the first quarter a new tiller is going to be purchased for $500. The owner also plans on increasing their bonus at the end of the year by $500. Loan principal payments are decreasing since the loan balance has decreased in this amortized loan. The cash flow is projected at $3,300 at the end of the year.

 Income statement and cash flow for example farm. Note the differences and similarities between these two financial statements. Compare what is included here with the formulas in Figure 3.
  Income statement and cash flow for example farm. Note the differences and similarities between these two financial statements. Compare what is included here with the formulas in Figure 3.
Figure 4: Income statement and cash flow for example farm. Note the differences and similarities between these two financial statements. Compare what is included here with the formulas in Figure 3. Click here to download editable blank income statement and cash flow spreadsheets.

Download Icon - Blank income statement and cash flow spreadsheet

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Income & expenses versus inflow & outflows
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Usefulness of cash flow

 

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