How do I plan cash flow
To plan for and manage cash
you need to budget for the timing of revenues and expenditures.
A cash flow budget requires identifying expected revenues
and expenditures and when they will happen during the fiscal
year. The cash flow budget should be prepared at the same
time as the general budget. Preparing a cash flow budget
involves the following steps:
- Estimate the amount of cash
that will be available at the end of the current fiscal
year (this money may be in savings or other investments).
These funds should include the cash carryover from the
year's operation and not already obligated for other
purposes. This is the money available for any expense
that may come early in the fiscal year.
- Estimate the revenues to
be received from various sources and when they are expected
to be received during the year.
- Estimate the expenses and
when payment must be made. Remember to include any money
needed for local match for any grants that may be received.
- Identify amounts of money
that should be kept in your accounts for reserves or
contingency funds. This money may be needed for unexpected
expenses to repair or replace equipment, cover unexpected
losses, and generally insure the municipality from the
- With the identified revenues
and cash carryover is it possible to cover all the estimated
expenses during the course of the fiscal year? Will these
funds be available when the payment must be made? These
questions require an analysis month by month of the cash
flow of the city. Once you have a strategy that seems
to pay the bills when they are due, you should prepare
a cash flow budget and have the governing body understand
it. To non-managers it may seem that because you have
large bank balances you can spend money on anything the
governing body wants, whenever it wants. This could be
a strategy for failure.
Why is managing cash flow
Understanding and planning
for the timing of the flow of cash into and out of your
organization is important to assure you have the cash on
hand needed to pay bills as they come due. For example,
if you receive your fuel order once a year by barge and
the cost is $50,000.00 delivered to your community (FOB),
you need to set funds aside and make sure they are available
for this use at the time the barge delivers fuel. Planning
ahead for this through the budgeting process is especially
important, since you must have cash on hand to pay the
bill when it is due and to avoid problems with your suppliers
as well as possible late payment penalties.
How does this relate to
Grants are usually cost reimbursable.
This means you first need to have money available to begin
the project and handle expenses until grant reports are
submitted and reimbursed. Planning ahead is important to
assure you have a supply of cash on hand to cover the up
front costs of the grants you are running.
If it is necessary to have
cash available for up front grant costs, won't this impact
In addition to having funds
on hand for grant operations, you must have funds available
for the usual day-to-day operations plus a reserve of cash
available for emergencies or unexpected expenses. For example,
if your organization's heavy equipment breaks down, you
may need to pay for a qualified mechanic to fly to the
community and freight in replacement parts and equipment.
Without some reserve cash you might have to shut down municipal
services or projects until you have the money to pay for