Twelve Steps to Cash Flow Budgeting

How much financing will your farm business require this year? When will money be needed and from where will it come? A little advance planning can help avoid short-term shortages of cash. One useful tool for planning the use of capital in the farm business is a cash flow budget.

A cash flow budget is an estimate of all cash receipts and all cash expenditures that are expected to occur during a certain time period. Estimates can be made monthly, bimonthly, or quarterly, and can include nonfarm income and expenditures as well as farm items. Cash flow budgeting looks only at money movement, though, not at net income or profitability.

A cash flow budget is a useful management tool because it:

• forces you to think through your farming plans for the year
• tests your farming plans, such as if you will produce enough income to meet all your cash needs
• projects how much operating credit you will need and when projects when loans can be repaid
• provides a guide against which you can compare your actual cash flows

Absorption and Marginal Costing

Before creating business plans or when evaluating existing ones it is important to 'scan' the external environment. This takes the form of a SLEPT analysis, i.e. an investigation of the Social, Legal, Economic, Political, and Technological influences on a business. In addition it is also important to be aware of the actions of your competitors. These forces are continually in a state of change. Social factors relate to pattern of behaviour, tastes, and lifestyles. A major component of this is a change in consumer behaviour resulting from changes in fashions and styles. The age structure of the population also alters over time (currently we have an ageing population). An understanding of social change gives business a better feel for the future market situation.
Laws are continually being updated in a wide range of areas, e.g. consumer protection legislation, environmental legislation, health & safety and employment law, etc. Businesses

Budgeting and cash flow

Budgets are statements setting out the planned performance of a business typically in a table made up of numbers. Usually these plans deal with money units (£'s/pence) but they can also consist of other measurable units e.g. units of output. Creating a budget enables an organisation (like Kraft) to plan ahead and then to check on its performance against budgeted figures.
The difference between budgeted figures and actual figures is termed a variance.
Variance is an important management tool because it enables businesses to manage their business - i.e. to take informed decisions based on management information (i.e. how actual performance compares with budgeted performance).eg; either favourable or unfavourable. A favourable variance is one where actual business performance proves to be

Stock valuation and depreciation

Stocks consist of all materials held for eventual resale, whether these be raw materials, work in progress or stocks of finished goods. The accounting standard SSAP 9 sets out that stocks should be valued at whichever is the lower of cost or net realisable values.
The standard defines cost as 'that expenditure which has been incurred in the normal course of business in bringing the product or service to its present location and condition'.
For a trading business such as a retailer, cost will therefore be the purchase price plus the cost of delivery to the retail store. For a manufacturing business, the cost of finished goods will be the direct costs of labour, materials and expenses, and in addition will include factory overheads absorbed into the product.
Net realisable value is the selling price of the stock less all further costs to be incurred before a sale is

Balance Sheet (overview)

A balance sheet is a statement of the total assets and liabilities of an organisation at a particular date- usually the last date of an accounting period.

The balance sheet is split into two parts:

(1) A statement of fixed assets, current assets and the liabilities (sometimes referred to as "Net Assets")

(2) A statement showing how the Net Assets have been financed, for example through share capital and retained profits.

The Companies Act requires the balance sheet to be included in the published financial accounts of all limited companies. In reality, all other organisations that need to prepare accounting information for external users (e.g. charities, clubs, partnerships) will also product a