To keep your nonprofit organization functioning, you need to know exactly how much cash you need – and when. A cash flow projection will help you identify shortfalls in advance. And, even if you have generous reserves, you need to measure cash needs against deposits so you don’t blow through your buffer funds.
Stated simply, a cash-flow projection is your checkbook, with estimated money in and out, reviewed in a spreadsheet format. Prepare it for a year at a time, one column per month. You will need your starting cash balance, annual budget and last year’s bank statements.
Looking at your budget, lay out your expenses month by month. For ones that don’t vary much, like telephone, use averages. If you pay some expenses at certain times of year – for example, insurance – record payments in those months. If payroll is bi-weekly, remember that two months a year you will have three paydays. Total your expenses to see how much cash you need each month.
Next fill in your revenues, using experience and funder knowledge as a guide to determining when checks will arrive. Using a rolling cash balance from month to month, add revenues and subtract expenses to see the cash position. Are there some months with more going out than coming in? Possible solutions include trimming costs, moving due dates, seeking additional revenue or getting a line of credit. With the last, be sure that you will have sufficient funds to pay it back.