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The cash flow of the operations

THE PLANNING OF MATERIAL NEEDS

3.5 Content and process of the financial plan

3.5.4. The cash flow of the operations

During the planning of the income and production costs we did not consider the timing of their financial realisation. However, we know that the financial realisation of the income and production costs induces cash flow. These cash flows imply actual incomes and cash-expenses. Regarding the needs for resources for continuous operation, it is not negligible how the correspondence between the incomes and expenses would change in time. The management – within certain limits – has an influence on the cash-flow. It is enough considering that either extending the payment due date of the account payables or shortening the payment due date of the account receivables could not be negligible for the company.

Hence it has a real significance how the bargaining position of the company changes concerning its sales and purchases. Quantifying the cash flow of the operations eventually means quantifying the needs of resources of the continuous operation. The tool of that is the cash-flow plan. However, we should know the cashflows of the operations if we want to make the cash-flow plan. Quantifying the cash-flow of the operations means defining the balance between the incomes and expenses on a monthly basis. The below binding correlation has to be valid in all cases:

Liabilities opening balance + Purchase expense =

Actual expense + Liabilities closing balance concerning the income it will be:

Receivables opening balance + Sales revenues =

Actual income + Receivables closing balance The above correlation of the balance sheet items is also valid for the cost-items, which mean real cash-expenses:

Liabilities opening balance + Production cost with cash-expense =

Actual expense + Liabilities closing balance The below binding correlation between the other income items is,

Other receivables opening balance + Other income =

Actual income + Other receivables closing balance It is important to note that the operational cash-flow has to be quantified at those cost bearers and cost centers, where the expenses and incomes in relation with the cash-expense are primarily incurred.

In order to demonstrate the above, take the definition of the operational cash-flow of animal husbandry as a basis. The cash-flow of the production costs is found in table 46. As it is seen the costs of the own fodder, the maize for silage and the ensilage are not taking part of the expenses in the table. Certainly, neither is the depreciation doing that as this is a cost, which does not mean an expense. The balance between the production costs involving cash-expenses and the actual expenses appears as a short-term liability. The reason for that is the fact that the items accounted for costs decrease the income, but concerning that they did not involve cash-expenses they have to be accounted as liabilities. They have to be accounted in the liabilities side of the balance sheet in order to ensure the debit-credit balance.

Table 46. The cash flow of the costs of the dairy-farm

Description I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. Total

expenses

Curren t liability

Check number kHUF

Grains 113 113 113 113 113 113 113 113 113 113 113 1243 117 1360

Hay 714 714 714

Provender 873 873 873 873 873 873 873 873 873 873 873 9603 877 10480

Total 0 986 986 986 986 1700 986 986 986 986 986 986 11560 994 12554

Electricity, water, gas 125 125 125 125 125 125 125 125 125 125 125 1375 125 1500

Fuel, lubricant 73 73 73 73 73 73 73 73 73 73 73 803 72 875

Cost of animal health 30 30 30 30 30 30 30 30 30 30 30 330 35 365

Cost of insemination 46 46 46 46 46 46 46 46 46 46 46 506 46 552

Performance test 18 19 37 0 37

Other material 16 16 16 16 16 16 16 16 16 16 16 176 17 193

Maintenance cost 13 13 13 13 13 13 13 13 13 13 13 143 15 158

Total material costs 0 1289 1289 1289 1289 2021 1289 1289 1289 1289 1289 1308 14930 1304 16234

Total staff costs 429 429 429 429 429 429 429 429 429 429 429 4719 429 5148

Other expenses 23 24 23 24 23 24 23 24 23 24 23 258 24 282

TOTAL 0 1741 1742 1741 1742 2473 1742 1741 1742 1741 1742 1760 19907 1757 21664

Depreciation 4775

Own fodder 3307

CHECK NUMBER 19907 1757 29746

It is recommended to always check the equality between the costs and expenses mentioned before and continue the calculation further on after we have done this checking. The reason why it is worth doing that is the difficulty in finding the possible mistakes later – regarding that we calculate with aggregated numbers – if there is no balance either in the balance sheet or in the cash flow. The cash-flow of the income and the operation can be found in table 47.

The planned sales revenues and other income together with the actual amount of money come in give the receivables. It will be classified into the receivables part of the balance sheet. The balance between the income and expenses gives the cash-flow of the operation. As it is seen the cash-flow of the operation is positive, but it refers only to the balance of the final amounts. So it could not mean – due to the gaps in the realisation of timing – that there is no need for any external resources. The operational cash-flow of the entire Ltd can be found in table 48.

Table 47. Changes in the cash flow of the income and operations of the dairy-farm

Description I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. Total Receivable

Check numbe

r KHUF

Milk 1693 1693 1693 1693 1693 1693 1693 1693 1693 1693 1693 1694 20317

Calf 225 225 225 230 905

Culled cow 975 975 1950

Involuntary slaughter

Total net sales revenues 1693 1693 1918 1693 1693 2893 1693 1693 1918 1693 1693 2899 23172

Milk quota 231 231 231 231 924

TOTAL 1693 1693 2149 1693 1693 3124 1693 1693 2149 1693 1693 3130 24096 Income

Milk 1129 1693 1693 1693 1693 1693 1693 1693 1693 1693 1693 1694 19753 564 20317

Calf 225 225 225 230 905

Culled cow 975 975 1950

Involuntar slaughter

Total 1129 1693 1918 1693 1693 2893 1693 1693 1918 1693 1693 2899 22608 564 23172

Milk quota 231 231 231 693 231 924

TOTAL INCOME 1129 1693 2149 1693 1693 3124 1693 1693 2149 1693 1693 2899 23301 795 24096 TOTAL EXPENSE 0 1741 1742 1741 1742 2473 1742 1741 1742 1741 1742 1760 19907 1757 21664

CASH-FLOW OF

OPERATION 1129 -48 407 -48 -49 651 -49 -48 407 -48 -49 1139 3394

Table 48. Changes in the operational cash flow of the Ltd

Description

I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. Total

month KHUF

Cultivation current year 0 0 -824 -7463 -15140 -6779 -1635 -7606 63440 -363 48545 -288 71886

Cultivation following year 0 0 0 0 0 0 0 0 -1809 -7700 -12702 0 -22211

Ensilage -27 -27

Cultivation allocated 0 -268 -273 -478 -388 -328 -451 -418 -303 -553 -523 -291 -4274

Ancillary plant 0 -762 -821 -1470 -2237 -1456 -905 -2532 -1175 -2355 -3771 -950 -18434

Service 0 0 -10900 4176 -12476 23217 1913 0 -35 0 0 -35 5860

Dairy-farm 1129 -48 407 -48 -49 651 -49 -48 407 -48 -49 1139 3394

Central administration 0 -921 -1696 -921 -921 -1189 -921 -921 -1696 -921 -921 -989 -12017

CASH-FLOW OF OPERATION 1129 -1999 -14107 -6204 -31211 14116 -2048 -11525 58829 -11967 30578 -1414 24177