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May 17 2021

Nonprofit Cash Flow Forecasts: How To Avoid Deficits

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.

How To Achieve Steady Nonprofit Cash Flow - araize.com

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.

  1. Prepare an annual operational budget with realistic budget assumptions.
  2. Determine revenue goals and plans for each operational activity.
  3. Calculate how much profit you expect to make from each activity.
  4. Start with your current revenue balance and expenses.
  5. 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.

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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 donations as opposed to cash donations
  • Unexpected loss of funding due to economic conditions

Restricted revenue for operational funds need close monitoring.

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Building cash flow projections

Projections consist of 2 types of scenarios:

  1. Money In — Includes: donations, fundraising proceeds, grants, fee for service revenue.
  2. 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.


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Bottom line

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.

Want to read more? Check out these insightful articles:

  • Nonprofit Financial Statements: How To Generate Compliant Reports
  • Why Using Spreadsheets for Nonprofit Financials Spell Danger
  • Winning Financial Strategies to Raise Nonprofit Funding
  • 8 Reasons Why Financials for Nonprofits Are More Difficult than For-Profits
  • Hidden Gems about Accounting for Nonprofits Revealed
  • Nonprofit Operating Reserves: How to Plan for Emergencies
  • Nonprofit Accounting Course: Essential Skills Training
  • In Kind Donations: Guide to What Nonprofits Need to Know

Did you find this article useful? We welcome your thoughts and comments.

Written by Joseph Scarano · Categorized: Accounting for Nonprofits · Tagged: Accounting Software for Nonprofits, cash flow, Direct Cost Allocations, Functional Accounting, Nonprofit Accounting, nonprofit cash flow, Nonprofit Financial Statements, Nonprofit Sustainability

About the Author

Joseph Scarano is the CEO of Araize, Inc., developers of cloud-based FastFund Online Nonprofit accounting, fundraising and payroll software solutions to help your nonprofit become more transparent, accountable and sustainable.

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  1. Financials for Nonprofits: 8 Ways to Overcome Unique Challenges - Araize says:
    September 1, 2021 at 9:03 pm

    […] of the common issues with non-profits is cash flows. This is because they depend on funding and donations, unlike a for-profit, which is […]

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