Cash Flow Projections

Posted on Wednesday, July 29, 2015

A cash flow projection can be a powerful tool for nonprofit organizations.  Unlike an organization’s annual budget, a cash flow projection includes only cash inflows and outflows, usually by month, so that the organization can plan for cash shortages or surpluses.

Begin with your organization’s total annual budget.  For each revenue and expense item included in your budget, when do you expect to collect cash and when you do expect to spend cash during the year?  Simply dividing the annual amount by twelve will not give you an accurate picture of your cash flows.  Some items, such as office rent and telephone are most likely consistent from month to month but other expenses such as supplies and program expenses vary.  Payroll could be consistent or vary depending on if the organization hires additional employees during specific times of the year (i.e. summer camps, etc.) or implements pay increases mid-year.  It is important to review the organization’s history, along with current information, to determine what month expenses are normally paid and cash is received.

Once you have determined monthly cash inflows and outflows, management can better plan for potential cash shortages or surpluses. 

In response to a potential cash shortage, the organization may be able to work with vendors in delaying payments through a payment plan.  Other possibilities to address cash shortages include additional fund raising by the organization, selling investments for cash, taking out a line of credit or loan, or working with funders to request an earlier grant payment.  Of course there’s always cutting expenses.

Management must also plan to address cash surpluses.  What will the organization do with excess cash?  Pay down debt?  Invest the excess cash?  Purchase needed equipment?  Or it may decide to build up its reserve balance.

By determining how much actual cash an organization needs each month and where the cash is coming from, management can better plan for the organization’s future.

 Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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