The cash position for each quarter is then calculated sequentially as described above, until the ending cash balance for the last quarter is calculated. That amount then becomes the beginning cash balance for the first quarter of the next year’s projected cash flow state ment.
The last four lines (32-35) enable the borrower to keep a running total of the various loan balances. The lines are labeled to distinguish between current year operating loans (line 32) and operating loans remaining from a previous period (line 33). This information is extremely useful when applying for a line of credit from a lender, because the lender needs to know the maximum amount expected to be outstanding as well as amounts expected to be outstanding throughout the year, The balances for each period are increased or decreased as funds are disbursed and payments are made.
Intermediate and long-term loan balances are on a separate line (line 34) and can be increased or decreased as additional funds are borrowed or payments made. The total loan balance outstanding each period can then be calculated by summing the loan balances outstanding for each type of loan and recording the total on line 35.
An Example–Fred Farmer
To illustrate how a projected cash flow statement is prepared, an example is used to describe the anticipated cash transactions for a hypothetical farm operator, Fred Farmer. The information describing this farming operation is presented in handout 2. Therefore, the information from handout 2 will be entered in the column labeled Projected Totals.
In this simple example, transfer the information contained in handout 2 to the projected total column for your projected cash flow state ment (handout 1). To check yourself refer to Figure 1, as the transactions are discussed in the following paragraphs.
5. A new piece of machinery costing $6,000 will likely be purchased; $5,000 will be borrowed from the local bank. (Line 18).
7. Intermediate and long-term principal payments on loans are expected to equal $11,000, with another $12,250 due in interest. (Lines 21 and 22).
8. The farmer has a money market fund for emergencies that currently has a balance of $5,000. This money will be used before additional money is borrowed.
On January 1, there is $2,500 in cash, or in the checking or negotiable order withdrawal account, or perhaps in a money market fund with checkwriting provisions. Remember, this balance is the amount at the end of the previous year. It is entered on line 1.
Next, expect $46,250 to flow into the operation during the upcoming period. This is found by adding the $26,250 from the sale of crops (line 2) to the amount of money flowing into the operation from an off-farm job, $20,000 (line 9). Thus, the total cash available is $48,750 (line 10).
To understand the mechanics of completing a projected cash flow https://www.paydayloanstennessee.com/cities/knoxville/ statement, the example will be used first to complete an annual projected cash flow statement
Also, expect $57,750 to flow out of the operation during the upcoming year. This is found by adding operating expenses of $12,500 (line 15), capital expenditures of $6,000 (line 18), family living of $16,000 (line 20), and intermediate and long-term loan payments of $23,250; $11,000 in principal (line 21) and $12,250 in interest (line 22).
The cash position at the end of the year would be minus $9,000 (line 24), which is not a desirable way to end the year. At this time Fred must think about ways to obtain some additional cash. This can be accomplished by increasing cash available, reducing cash required, bringing in savings, or borrowing.