Accounting for Profits
continued from page 16
operating expenses, a ﬁ nancial statement from the most current
period is generally sufﬁ cient to estimate future monthly averages.
Expenses that are concentrated in certain months should be split
out accordingly (e.g. Property taxes and farming/crop expenses)
to accurately reﬂ ect cash needs when payments are expected to
To get a good handle on feed expense, we recommend involv-
ing your nutritionist in the calculation of feed costs per head.
Feed costs for milk cows should be sufﬁ cient to achieve milk pro-
duction levels used in the budget. You will want to also consider
herd growth when calculating feed costs. It’s easy to run numbers
on a static herd, but with high feed prices, any growth in the herd
left unaccounted for can be a major draw on cash ﬂ ow. One of the
most important parts of projecting cash ﬂ ows is ﬁ guring produc-
tion on milk cows. One or two pounds of milk per cow per day
can make a signiﬁ cant difference in the numbers, especially on
larger operations. Your nutritionist should be a part of this discus-
sion as well. In the end, your projections should reﬂ ect as closely
as possible the actual result achieved.
Pay-down equal value
When preparing the projections, it’s important to consider
usage of forage inventories. Consumption of feed inventory
should allow for pay-down of the feed note of an equal value.
Borrowing needs for large inventory purchases should also be
projected into the time periods they will actually occur. The ef-
fect of crops raised and inventoried should also allow for reduc-
tion of the feed note as they are fed.
Include debt service requirements on non-operating debt,
as well as interest expense on all debt. When considering debt
repayment, you might also give attention to aged payables and
include catch-up payments in the projections.
When all income and expense have been considered, you will
have a projection of monthly cash ﬂ ow available to pay down
operating debt or shortages, which may make additional bor-
rowing necessary. Your loan-to-value can be calculated by ﬁ gur-
ing operating debt as a percentage of herd and feed collateral.
Cash ﬂ ow available for pay- down or needed for draws on that
debt will affect changes in loan-to-value from month to month.
Your banker will be pleased that you are taking steps to manage
As we’ve assisted many of our clients in setting up and monitor-
ing cash ﬂ ow projections, the overwhelming majority have found
it to be an invaluable exercise. I will emphasize the importance of
being realistic. You want your projections to be achievable. Update
your projections monthly and measure budgeted vs. actual results.
These days, many banks are considering ﬁ nancial sophistication of
management as part of their assessment of risk, which impacts your
interest rate. Presenting achievable, complete, well thought out cash
ﬂ ow projections will go a long way in convincing your banker that
management sophistication should have a positive effect on that
Powerful Than Corn.
EnerGII ® creates immediate results and sustains them – in
research trials and on thousands of dairies throughout North
America – dependably delivering energy to all the right places.
EnerGII is rumen inert and safely packs more than 2.5 times
the energy of corn without upsetting rumen balance!
The Brains to
Improve the Brawn.
Efficient dairies use efficient energy and EnerGII is the
smartest energy solution on the market – dramatically
improving herd condition, managing total costs, and
predictably improving ROI.
Delivering in Your
Time of Need.
EnerGII predictably improves milk
production and body condition,
throughout the crucial periods of
summer heat. It’s so powerful, just 1⁄2
pound of EnerGII reliably delivers 2.5
lbs. of milk – so you know we’ll be
there when you need us, like any good
For more information or to find a
distributor near you, visit us on the web at
1.800.225.4519, or email
TheEnerGIIDifference@VirtusNutrition.com EnerGII ® and Virtus Nutrition™ are trademarks of Virtus Nutrition, LLC.