Nonprofit cash flow forecasts predict when revenue comes in and when revenue goes out. It is an excellent tool to avoid cash shortfalls. By pinpointing deficits during a 12-month period, your nonprofit can avoid a crisis before it becomes a major problem.
5 steps to create nonprofit cash forecasts
Base your forecast on your organization’s plans and activities for the upcoming year. Your annual budget plays a key role in supplying the expected expense and revenue figures for your nonprofit cash flow projection.
Start with your previous year receivables and expenses for a 12-month projection.
- Prepare an annual operational budget with realistic budget assumptions.
- Determine revenue goals and plans for each operational activity.
- Calculate how much profit you expect to make from each activity.
- Start with your current revenue balance and expenses.
- Base forecast on your operational budget.
What separates nonprofit sector business models from for-profit cash needs? Nonprofits lack predictable, regular income because it relies on funding and donations. A forecast keeps track of all revenue coming and going out of your revenue account. It predicts when funds become available.
Not every nonprofit organization operates the same way. Forecasting is essential to meet the unique needs of all nonprofits. Cash reserves can avert a shortfall, especially when your nonprofit requires money at a moment’s notice. Having diverse revenue streams can keep your organization running in the green.
Cash flow forecasts prevent shortcomings
It is important to note ongoing cash flow problems can be a symptom of an underlying issue. Proper financial planning can uncover weaknesses and ensure financial health. Having enough cash reserves are a good indicator of resilience and readiness.
The challenges nonprofits face are due to the business models they operate with. This includes the types of programs and services they deliver and the methods of funding. Planning makes it possible to have revenue available for ongoing and unexpected expenses.
Forecasts avoid cash flow problems by:
- Tracking money in and money out.
- Anticipating revenue shortcomings.
- Adapting and responding to unexpected changes.
It might be necessary to create several projections for different possibilities. To make this more effective, we recommend using a nonprofit cash flow projection template.
Consider the following events when managing your cash flow:
- Restricted funds
- In-Kind contributions as opposed to cash donations
- Unexpected loss of funding due to economic conditions
Restricted revenue for operational funds need close monitoring.
Building cash flow projections
Projections consist of 2 types of scenarios:
- Money In — Includes: donations, fundraising proceeds, grants, fee for service revenue.
- Money Out — Includes: operating expenses (payroll, rent, administrative and program costs). Expenses incurred from running various fundraising events.
Use your operating budget and income statement as the basis for a cash flow forecast. Accrual accounting causes differences in projected payments vs recorded expenses. This will show up on the income statement.
Create your projections for a 12-month period separated by each month. Your Statement of Financial Position or Balance Sheet shows the beginning balance.
It is important to review your forecast on a monthly basis.
Cash flow management strategies
Monthly projections help pinpoint a deficit and find ways to manage it by:
- Increasing fundraising
- Modifying due dates for expenses
- Reducing operating expenses
- Starting with an accurate balance
- Basing projections on operational budget
- Incorporating the expected timing of income and expenses
- Knowing when grant money comes in
- Paying attention to restricted grants
A nonprofit cash flow projection template predicts when bills are due and revenue is available. It also serves to identify a deficit ahead of time. This helps plan when to use other sources of revenue during lean times.
- Incorporate the expected timing of revenue and expenses
- Know when grant money comes in
- Pay attention to restricted grants
Stay on top of payroll periods . For example, a biweekly-payroll contains two months per year with three payrolls.
Include large sum payments for insurance, payroll taxes, etc.
Timing is everything when it comes to shortfalls. Monthly projections pinpoint deficits before it becomes a major issue. This helps plan for either boosting fundraising efforts or rescheduling new programs. Over time, your nonprofit will find many ways to save money and become more sustainable.
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