A Nonprofit Accounting Guide to Cash Flow Forecasting for 2022

Executive officers in a meeting for their nonprofit cash flow forecasting for 2022

Running a nonprofit organization takes dedication. In order to successfully serve your members and the community, you must keep your operations focused on the mission. It can be challenging to keep up with day-to-day tasks, like bookkeeping and accounting.

One important function of the accounting or bookkeeping team is to stay current with cash forecasting. Having a good handle on daily cash management and future cash needs will allow the organization to continue to run like it’s supposed to. Nonprofits are born with a purpose and ensuring their successful future needs to remain a priority. 

What Is Cash Flow Forecasting?

Cash flow forecasting tells you how much money you have and how much money you will need. By forecasting, an organization can track all revenue coming in and all expenses coming out. The focus is on how those transactions affect the bank balance at both the current time and future time periods. 

A cash flow forecast is like a rolling budget. The format is usually built on the budget for the year and then updated each month with actual incomes and expenses. As the number of actual months grows, the forecasted months must be updated for any changes in the budget or cash flow. 

Why Do Nonprofits Need To Forecast Cash Flow?

By tracking transactions and projecting, or forecasting, future months, a nonprofit can ensure that it has enough cash to continue operating and in the event of an emergency or unexpected circumstance. Most companies run a cash forecast through the calendar year so that projected cash flow shortages are never a surprise. 

Nonprofits are often more sensitive to changes in the budget than other organizations because their cash is often already allocated or may have restrictions on its use. Punctual cash forecasting allows a nonprofit to proactively respond to any expected change in the cash flow. 

Nonprofit Cash Forecasting 2021 Survey 

A survey conducted by PNC worked with nonprofit leaders to see where they were at with their budgets and forecasts. Data was collected by asking nonprofits about their expectations for their budgets in 2022. The results, pictured below, were not surprising. 

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State of Nonprofits: 2022 Budget Forecasting

The survey showed that almost half of the leaders interviewed thought that their nonprofits would experience a slight increase in their 2022 budgets. With an additional 11.6% of leaders reporting an expected significant increase, nonprofit organizations are preparing for increased expenses. 

An expected rise in expenses leaves nonprofit leaders if revenue will increase to cover the higher costs. Nonprofit revenues depend heavily on donors and government agency grants. It is hard to predict what that activity will look like post-pandemic, which is why meticulous nonprofit cash forecasting may be the key to survival for many nonprofits. 

3 Best Practices for Nonprofit Cash Flow Forecasts

Create Multiple Cash Flow Projections

A nonprofit organization’s cash flow can be unpredictable. One great way to account for that is to create multiple cash flow projections. Creating a different forecast for different scenarios is recommended. 

For example, a nonprofit may have one cash flow forecast assuming all desired grants and donations will come in, and other forecasts accounting for none or some of the revenue to be received. 

Multiple cash flow projections can show the expected cash flow balance if the organization receives additional funding, loses government funding, experiences an emergency, loses or gains gifted amenities, and other unexpected scenarios.

Narrow Your Focus

Cash flow forecasts do not have to show all the revenue and expense fluctuations. They can be made to focus on one area that may have more unexpected changes than others. Narrowing the focus of the projection, allows the organization to spend time monitoring the areas which cause concern only.

For example, if most of your revenue is restricted and stable, it may benefit the organization to forecast expenses only. By continuously updating the forecast for changing costs, you will get a good picture of how the changes are affecting the bottom line. 

Call In Expert Help 

Cash activities are going to fluctuate. While meticulous forecasting is necessary to respond to unexpected changes in cash, it is incredibly time-consuming. Revenues and operating costs can change week to week, and keeping an updated forecast puts a lot of strain on the internal accounting department. 

Don’t be afraid to ask for help. Many nonprofit organizations find great value in outsourcing their cash flow management strategies and cash forecasting. If you are already having bookkeeping done by an external accounting firm, adding cash forecasting will be easy. 

Allowing an accounting service, like JFW Accounting, to manage cash projections will free up your nonprofit’s time and resources so you can focus on your mission. If your organization chooses to keep cash management in-house, speaking with an expert can help there too. An outside perspective may provide the tools to smooth the process and ease the burden on your team. Schedule a call here!

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