• Luke Loescher

The importance of cash flow

Updated: Aug 1

Even though your budget for the year might be well-managed and have a surplus, you still may not always have enough money on hand. This is because your finances are unpredictable. Some months, you’ve got more money than you know what to do with and other times money is tighter than a drum. You can never be too sure about what will happen when it comes to spending or saving money.


In order to be financially stable, it's important to project and plan your cash flow. Let’s explore that right now. It is important to understand the distinction between your cash flow and budget. Remember that both of these are crucial to your financial wellbeing. A budget is a plan for how you will earn money and spend money. Your cash flow reflects the inflow and outflow of money in your organization.


In order to have cash when you need it, you'll need to create a system that will help you manage your finances. A budget is not the same as a cash flow projection because it does not cover things like loans or money owed. A cash shortfall does not necessarily mean your budget is in trouble. A cash flow projection typically only includes both income and expenses having to do with money paid out, which means that it may or may not include external factors such as loans or investments, for example. Effective cash flow planning begins with a budget that takes into account what income you have, when income will come in and the timing of your expenses.


It's also important to plan for any periodic needs (such as seasonal items), payroll, benefit plan payments, discretionary repairs or capital purchases. When you anticipate cash shortfalls, for example those times of the month or year when money isn't coming in but bills are, you need to prepare and monitor your spending.


While there are many ways to address a cash shortfall, here are few.

  1. Consider if you have the ability to bring money into your organization faster. Build relationships with contract managers, major donors, foundation officials and donors.

  2. Ask if payments can be made earlier in the year. You might want to consider changing the time of your annual campaign or special events.

  3. Review your invoicing practices and collections policies to see if you can generate revenue more quickly.

  4. Consider the timing of payroll and benefits ahead of time. You can also ask for an installment payment or a longer term on payments.

  5. Other ways to find cash are by using your line of credit or with reserves from your company.

Planning, preparing for, responding to, and understanding cash flow will ensure a financially healthy company year-round.


Stop budgeting for your money. Start living on it. Schedule your free 30-minute consultation with us today!


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