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Joe and Jean Farmer Cash Flow Activity NarrativeJoe and Jean Farmer are now estimating their cash flow needs for 2020, including both their farm income and expenses as well as Jean’s off-farm income and their family living needs.The farm’s main income sources include cash grain sales, bred beef heifers and beef calves. Yearly expenses are fairly consistent other than in 2020 the Farmer’s plan to build a new machine shed in July, which is a capital asset purchase for $100,000. They plan to finance $80,000 of the building cost (term loan proceeds).Using their projected Cash Flow for 2020, fill in the following blanks:Sell 160 calves at weaning in October, which typically weigh an average of 550 pounds (use $1.50 per pound for a sales price). Add this income to bred heifer income in January and cull cow income in November which is already listed to get the annual estimate.Corn inventory on hand (10,000 bushels) was sold in January (use $3.15 for sales price). Add this to 2020 corn production already listed to be sold in October to get the annual estimate.Most veterinarian expenses occur when cattle are worked in October, usually $3,200 in that month. March is also a big month, typically around $2,500. The remaining months are on an as-needed basis, but the Farmer’s use $100 a month for planning purposes.Family Living withdrawals are estimated at $60,000 per year. Divide that equally over 12 months.What is the Net Cash Flow for the year? (What is the difference in Total Inflows verses Total Outflows?) Fill this value in the appropriate place. After completing the Farmer’s Cash Flow, answer the following questions:What cash balance does the farm begin the year with when you account for the balance of the operating loan?The farm starts the year off with $13,032 in checking but has an operating loan balance of $98,500, so they actually have -$85,468 in cash at the beginning of the year.This would be fairly common as they had expenses to plant wheat and have prepaid inputs for 2020.What cash balance is the farm projected to have at the end of the year?-$97,282What month will the biggest cash shortage occur (largest operating loan balance)?In September their operating loan will be -$403,215In reality they would keep some money in checking throughout the year and actually have a slightly higher operating loan balance.What can this family do to manage if their operating loan maximum is $350,000?This operation has a large advantage in just knowing a shortfall is coming and being able to plan for it. Without planning, this disaster could hit without warning and options are then limited.It may take a combination of things for this operation to make up their shortfall. Somehow they need to increase income and/or reduce expenses. In no particular order: Take a look at family living expenses; are there areas that the can save?Is there a way to increase off-farm income? Not only can off-farm income can be important in providing additional income, but it also can reduce family living expenses if the job could provide health insurance, retirement savings, and other benefits to the family.Is there some type of custom hire or other work that could be generated to increase farm income?Should they refinance some operating loan debt to longer terms to free up some cash?Should they wait to build their new machine shed?Should they sell their calves earlier?Can they evaluate their enterprise mix and increase their income?Crop rotation?Selling calves/bred heifers?Sell unused or underutilized assets to generate cash?Do they need to sell some land?This is probably drastic for this situation, but there are operations that would benefit from selling a piece of ground to free up some cash if they are really having trouble with short-term financing. Also to note; between cash on-hand and the operating loan, they will start next year with an increased line of credit. It is important to recognize that they are going backwards slightly. Consideration should be given to how they might improve the situation. ................
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