Finance - Tips for Cash Flow Forecasting
Recognizing the importance of cash flow to a nonprofit, Murray Dropkin and Allyson Hayden, in their book The Cash Flow Management Book for Nonprofits, suggested that the idea of cash flow forecasting is based on an organization's operating budget. This involves reviewing and characterizing each line item in the operating budget, and it includes three steps.
The steps are:
- Reviewing the operating budget. This should entail assessing the cash flow effect of each line item. For example, some operating budget items may be paid over a longer period of time. After each line item in the operating budget has been analyzed and the cash flow effect and timing have been determined, the organization may begin to prepare the cash flow forecast.
- Adjusting the operating budget to create the cash flow forecast. Prior experience and future expectations will determine the adjustments an organization will have to make to include operating budget amounts in cash flow forecasts. Some items may have a big effect on cash flow changes and others none at all.
- Reviewing and approving the cash flow forecast. The annual cash flow forecast should be reviewed and the beginning cash balance should be added to the net cash flow to determine what the forecasted year-ending cash balance will be.
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