Like any business, projecting cash flow for a nonprofit can be tricky but doesn’t need to be difficult. While there are different obstacles in terms of how you determine what you are projecting for, the end goal is the same for businesses and nonprofits. Projections identify what funds are coming in and which are going out and the timing of that activity in the year ahead. We have a few ideas on how you can manage cash flow projections properly in your upcoming budget.
Monthly Cash Flow Projections
Many organizations choose to do quarterly cash flow projections to easily highlight lean quarters in terms of income. You might consider monthly cash flow projections to keep a closer eye on your funds. Remember, this document is mainly for you and your board, so make it easy to understand. Keeping monthly tabs on your financial activity is the best way to remain solvent.
When looking at your budget from the past few years, begin categorizing expenses and income. Break out your grants, general donations, event income and consistent givers each month and be specific on what you received or paid. This is the best way to project what might be coming in each month. This is where you will add the grants or donations you THINK you’ll get this year.
Work Backwards for Projecting Forward
Start with the easy expenses that are usually consistent each month, such as rent or mortgage payments, utilities, etc. Consider varying expenses incurred during the year, such as snow removal in the winter and landscaping in the summer.
Don’t be too optimistic projecting income. Sure, you want to think you’ll get all the money you’re asking for, but you must be realistic. If a grant reward is estimated between $25,000 to $40,000, your cash flow projection should remain conservative at $25,000. It is difficult to recover from a projection that was too high. Cash flow projections are meant to alert you of a revenue shortfall, not portray a dream budget.
A Healthy Nonprofit Relies on Cash Flow Projection
Some nonprofits struggle with cash flow because of irregular donations or grant awards. Nonprofits need to have a good cash flow management system to ensure they don’t run out of money in any given month.
Numbers 4 Nonprofits can help your organization build a cash flow management system that will not only keep your nonprofit healthy, it will keep your board happy and make sure your mission is supported.