Managing Your Finances

Projecting Revenues And Monitoring Cash Flow
How to ...
Develop a cash flow projections worksheet

Projecting Revenues And Monitoring Cash Flow

Predicting cash flow is critical to program success

Managers must ensure that they have adequate cash in the bank (for private sector programs) or funds in their allocation (for public sector programs) to cover all anticipated financial obligations each month. The first step in this management task is to project, during the planning process, the cash flow and the funding availability. Once the work plan and budget are completed, the manager uses both documents to analyze the timing of anticipated expenditures. By comparing these with the timing of anticipated receipts, the manager can see whether there are any periods in which there will be insufficient funds.

For example, if a new family planning clinic is scheduled to open in May, there will probably be large outlays of cash for new equipment and furniture in March or April. If the program receives equal quarterly or monthly payments, there will not be enough cash for these unusually high expenses in March and April, and unless the manager takes special measure, the clinic won't open on time or will open without adequate equipment.

Strategies for anticipated cash shortages

There are three basic strategies for dealing with periods in which you foresee insufficient funds. As a manager, you should find that at least one of these strategies is feasible for your program.

Adjust the timing of activities in the work plan, or cut other expenses from the budget;
Rearrange a donor or ministry payment schedule so that large payments precede large expenditures;
Arrange for a short-term loan (usually only possible for private sector managers).

Failure to predict cash flow accurately can cause cash shortages at crucial moments in the life of a program, leading to delays in the payment of salaries (and thus demoralization of staff and high turnover), inability to buy basic supplies when needed, and other emergencies, all of which result in the program's failure to achieve its objectives.

Develop a cash flow projections worksheet

The cash flow projections worksheet is a key monitoring tool that can help a manager anticipate the amount of cash needed to cover anticipated expenditures. By projecting revenues and expenses, the worksheet shows the inflows and outflows of cash that are anticipated during a specific period of time. A manager can use the worksheet to compare actual revenues and expenditures with those which were projected, in order to ensure that sufficient funds are available at all times to meet program needs.

To set up your cash flow worksheet, first enter the amount of cash on hand at the beginning of the first month. This is your starting cash (section 1 in the example).
Next, make a list of all potential sources of cash income expected during the year that can be used to pay necessary expenses. Then figure your monthly income projections for each income category, noting the amounts and in which month(s) the cash will be available ("Income by source" in the example). Total the income in section 2 for each month.
List all possible categories of expenses. For each category of projected expenses, fill in the projected monthly expenses and total the expenses for each month in section 4.
Having estimated total projected income and expense, the worksheet now reflects the total projected cash-in (section 2 in the example) and the projected cash-out (section 4 in the example) for each month.
To figure the total cash available for use during the month (3), add "Beginning cash on hand" (1) to "Total projected income" (2).
To determine the "Total cash on hand at the end of the month" (5), subtract "Total expenses" (4) from "Total cash available" (3).
Carry over the amount of cash on hand at the end of the month to the first line of the next month. Thus, the cash on hand at the end of the month (5) always matches the amount of cash on hand at the beginning of the following month (1).

Tools and Techniques - Cash Flow Projections Worksheet