How to Project Cash Flow for Your Nonprofit

A cash flow projection is a subdocument of your nonprofit budget that estimates not just how much money you will receive and spend over the course of a year, but when you will receive and spend it. It breaks down your budget into increments of time. Some organizations create quarterly (three-month) projections, some monthly, some weekly.

Although grantmaking organizations and major donors are likely to want to see your budget (and may want to see the version that compares projections to actual amounts), your cash flow projection generally is a document for you, your board, and possibly a loan source.

A good cash flow statement is in constant motion, anticipating and following your every move. Based on the careful way you developed your budget, you may know that you’re likely to have enough revenue to cover your organization’s expenses in the coming year. The cash flow helps you figure out whether you’ll have that money at hand when you need it.

To set up a cash flow projection, begin with a copy of your budget and add details to the names of all the various categories. For instance, under “Foundation Grants,” write down the names of every foundation from whom you now receive money and of any from whom you anticipate receiving a grant.

Add the same kinds of details for your expense categories. For example, under “Utilities,” add separate lines for each bill you receive, such as water, electricity, gas, or sewer service.

We recommend that you project forward by going backward. Create columns for the most recently completed three months of your year. Go through your records. Put any income received into the appropriate periods, and write down all your expenses in the right categories and time periods. Having these actual figures for the recent past helps you see patterns of income and expense.

Now, begin projecting: Go back to each line item and write down the estimated amount that’s due during each monthly period. Begin with the “easy” items — like the rent that’s a constant amount due on a certain day or the employer’s share of federal payroll taxes. Then look at the consistent bills that change a little bit over time.

As you get into the flow of making predictions, it’s easy to become too optimistic about your anticipated income. If you’ve applied for a grant that you’re just not sure about, don’t put it into your cash flow projection. If your annual fundraising event raises between $25,000 and $32,000 each year, project $25,000 in income.

You’re almost finished at this point. As a next step, look back at your financial records to see how much money you had at the beginning of the first month of your cash flow projection. Place this figure in a “Balance Forward” row as the first income item for your first month period.

Add the “Balance Forward” figure to all the income for that month and subtract that month’s expenses. The difference gives you the next “Balance Forward” amount that belongs at the top row for the next column of income for the next monthly period.