Page 165 - DMGT521_PROJECT_MANAGEMENT

Project Management

Notes or below a specified amount, you can transfer any money available in savings to the
checking account.
If the cash position before borrowing and after savings, is still negative or below some
specified amount, you must borrow those funds needed to satisfy the deficit and/or
maintain the minimum amount desired in the checking account. It provides a place to
enter operating, intermediate, and long-term borrowing.
A line is also needed to schedule principal and interest payments for operating loans,
which lenders usually require to be repaid during the upcoming 12 months from the
proceeds of the enterprises financed. For example, if operating funds are borrowed in the
spring to plant the corn crop, those funds are usually scheduled to be repaid when the corn
is expected to be sold. Of course, if the corn is stored and expected to be sold the next year,
then the payment should be scheduled the next year.
Two additional lines are needed to account for any cash remaining at the end of the period.
First, when the amount of cash is greater than the minimum balance desired, the excess
will likely be invested in a short-term security, money market fund, etc. Therefore, a line
is needed to account for funds flowing out of the farm business and into some type of
savings or short-term investment. This line is necessary since that amount of cash will not
be available for use by the farm business until either the security matures or until the
funds are withdrawn by the operator. It is the ending cash balance for the quarter. This is
also the beginning cash balance for the next quarter.

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 statement.
The last four enable the borrower to keep a running total of the various loan balances. The
lines are labelled to distinguish between current year operating loans and operating loans
remaining from a previous period. 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 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.
3. 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. To understand
the mechanics of completing a projected cash flow statement, the example will be used
first to complete an annual projected cash flow statement. Therefore, the information
from handout 2 will be entered in the column labelled Projected Totals.

9.9 Projected Balance Sheet

Unlike a past balance sheet that shows a business’s actual, historical financial positions, a projected
balance sheet communicates expected changes in future asset investments, outstanding liabilities
and equity financing. Businesses may consider the creation of a projected balance sheet as a way
to facilitate long-term, strategic planning. A business long-term plans often concern future asset

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