Building a cashflow forecast and understanding the cashflow process

Use this page to learn about how to build a cashflow forecast and how the cashflow process works.

A cashflow forecast is there to help you make decisions. Looking ahead at your numbers and forecasting when difficulties may come up will help you. It gives you more time and space to take thoughtful action.

The same as in your own life – cash flow is particularly relevant if:

• your income or expenditure isn’t regular but comes in at different times (perhaps much of your income comes from one major event, or your members all renew at the same time of year).
• you’re short of money
• you have a surplus you might be able to invest for a period of time.

What you’re likely to find difficult is committing to saying when money will arrive (or be spent) because you often just won’t know. In that situation:

• Make some assumptions - always be pessimistic and assume you will spend at the earliest opportunity and receive money at the latest!
• Test them out with colleagues or someone who will listen.
• If they still seem sensible, note them down with your cash flow.
• Monitor and update your cashflow regularly.

Restricted funding is another complication to consider for charities. This cannot be spent on unrestricted purposes, so you need to be able to track it separately in the cashflow forecast.

For small to medium organisations (which aren’t in immediate financial difficulty), updating your cash flow monthly and forecasting a rolling 12 months ahead is reasonable.

CAPlus Community Accounting has a demo which outlines the cashflow process and a cash flow template you can use on Microsoft Excel.

Now you have produced a cashflow – use it. Look at the bottom line – showing the forecast balances on your bank account:

• Are you happy with the balances at the end of each month or are some too low for comfort? (you might want to set a minimum balance for unrestricted funds)
• Does it look as though you will have extra money you could invest?
• Check your assumptions again to see if anything has changed which would make the cash balance vulnerable.

If your cash forecast shows the balance getting lower, but your overall income and expenditure forecast is still in surplus, you could look at:

• moving spend around
• asking funders to bring grants forward
• having a discussion with your bank to alert them and ask for advice based on your forecast.

• CAPlus Community Accounting have budgeting and cashflow templates.
• Read our guidance on writing a business plan which has templates for financial forecasts.
• Read our management accounts guidance to help you learn about how to use your budget to track progress against plans and make decisions about your future direction.

NCVO worked with Rachel Cooper at Welbeck accountancy to create this guidance.