February 6, 2024
We’ve all been there: the middle of the night bank login to check a balance. The call to the insurance company to see if they’re doing the ACH draw at 6am or 6pm. Or the gentle email to the donor to see if that wire transfer might possibly hit this week. Budgets are crucial but they won’t tell you if you have enough cash in the bank to make payroll. That’s why it’s critical to pay attention to cash flow.
Every organization has different needs, but with these practical best practices, you ensure you’ll have everything you need to keep your programs running and your lights on:
The Secret to Comedy – and Cashflow: Timing! (The secret is timing!) Build your calendar of revenue and expense events. You’ve probably got payroll and rent on a regular cadence, and then perhaps significant annual one-time expenses like insurance and software renewals. On the revenue side, you may have grant payments coming, and an estimate of program income over the coming months. Use what you know from previous years, then plot it all out. Pay attention to the ebb and flow. And, if you dip negative, it’s time to figure out how to soften the curve. See if you can get that grant a bit early or negotiate a payment plan for your software. It’s much easier to strategize in advance than waiting until you’re faced with a dwindling balance.
Don’t Get Out Over Your Skis: There’s no home for swagger in a cash flow projection. You don’t have to go overboard, but it’s best to err on the side of overestimating expenses and underestimating revenue. And always incorporate risk assessment in your projection process. Evaluate potential risks that could impact your cash flow, such as changes in funding sources or economic downturns, and develop contingency plans.
Don’t Get Caught Out: This isn't just a one-time deal - keep tweaking your cashflow projection throughout the year to make sure you're always on track. For instance, your staff may think they’re proceeding “in budget” but a contract signed too early may rock your cashflow in the blink of an eye. Keep a close eye on organizational spending; regularly review and adjust expenditures to align with current cash flow realities, focusing on cost-saving measures without compromising mission-critical activities.
Collect Wisdom: Consider consulting with external financial experts, advisors, or auditors when building your cash projection. They’ve likely seen it all, and their expertise will provide valuable perspectives and help find opportunities or risks you might have overlooked.
Develop a Cash Flow Policy: Finally, establish a formal policy for managing cash flow. This policy should outline procedures for monitoring, reporting, and responding to cash flow changes, ensuring consistency and accountability within your financial team.
Cashflow projections are your crystal ball into the financial future. It's about taking a good, hard look at your past numbers, guessing what's coming next, and preparing for different what-ifs. And with regular attention, you’ll always be able to see around the cash corner in time.
