How to Project Cash Flow for Your Nonprofit

By Stan Hutton, Frances Phillips

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

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.

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 which you now receive money and of any from which you anticipate receiving a grant. Add the same kinds of details for your expense categories.

Project forward by going backward. Sounds contradictory, doesn’t it? 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. Don’t worry if you’ve forgotten any categories. Having these actual figures for the recent past helps you see patterns of income and expenses.

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 vary over time.

If your utility bills are high during winter months because your agency is using the furnace more, don’t forget to project that increase. If you manage a community vegetable garden during the summer that increases water usage, project for that increase as well.

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.

The reason? You won’t have any problem knowing what to do when you have more money than anticipated, but you may have a problem making up a shortfall! Your cash-flow projection is supposed to warn you if you’re about to fall short.

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 it 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. And keep going. The balance for each month is steadily carried over to the top.

Income 1/1–1/31 2/1–2/28 3/1–3/31
Balance forward $21,603 $9,845 $43,445
Government contract $65,000
Williams grant $15,000
Power company contribution $2,500
Board giving $4,000 $750
Total income and balance forward $40,603 $75,595 $45,945
Expenses 1/1–1/31 2/1–2/28 3/1–3/31
Payroll $22,197 $22,197 $22,197
Health benefits $2,111 $2,111 $2,111
Payroll taxes $2,775 $2,775 $2,775
Rent $2,500 $2,500 $2,500
Electric company $675 $675 $580
Telephone $435 $450 $475
Office supplies $65 $120 $120
Travel and transportation $1,322 $8,700
Total expenses $30,758 $32,150 $39,458
Balance: $9,845 $43,445 $6,487