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How to Make Cash Flow Projections (and sleep better at night)

Remember how I said earlier that your profit and loss statement isn’t about money, and that it can’t tell you whether or not you can afford to pay for all your programming? The P&L can only tell you what you’ve done in the past, and it really has no relation whatsoever to your bank account. I know, crazy! That’s because earnings and expenses are recorded at the time that the work takes place, NOT when the money trades hands.

So how can we plan whether or not we’ll have enough cash to pay all the bills? Enter the Cash Flow Projection (cue drumroll).

Making a cash flow projection is very similar to making a budget for the year. And in fact, it’s best to have your budget on hand when you sit down to do cash flows. The difference between the budget and cash flows is that the budget plans out the costs and earnings for the whole project or year, whereas your cash flow projection estimates when money is actually going to go in and out of your bank account.

So let’s take a look at an example.

Let’s say we are going to put on a concert in November and a fundraising event in December. According to our budget and our many years of experience, we estimate the concert will generate $2,000 in ticket sales and the fundraiser will make $3,500.

On the expense side, the concert will cost $4,500 and the fundraiser, $1,500. Plus, we have our staff and admin costs to factor in.

Here I’ve set up the projections on a monthly basis, Sept through December.

Cash Flow Sample

Sample of 4-month cash flow projection

Step 1: Enter your beginning bank balance

The first line of data has your bank account balance at the beginning of the month. I’ve thrown in $5,000 for September as an example. Don’t worry about the balances for the months after, because those will be calculated later.

Step 2: Enter your revenues

After entering the bank balance, we input the general revenues that we know are going to come in. We’re not going to worry about small amounts, nor are we interested in being detailed to the penny. We’re just going to work with the big picture.

From past experience I know that we usually sell a quarter of our concert tickets two months prior to the show, another quarter the month before, and the rest in the month of the concert. So of the $2,000 we expect to earn, I enter $500 in September, $500 in October and $1,000 in November.

For the fundraiser, though, all those tickets and silent auction moneys will come in just before and at the event. So, I enter the full $3,500 in December.

Now let’s enter the grants we’ve been approved for. In October I’m showing $,2000 for a project grant we were approved for last spring. Here is where our annual budget and our cash flow projection differ. This $2,000 grant would show up in last season’s budget because that grant was for the concert we put on last season. But the money won’t hit our bank account until after the project is done and we’ve filed our final report. So that’s why it shows up in this season’s cash flows.

Same thing with our operating grant. We’ve been approved for $20,000 for the whole year, but it will be paid out in two cheques, one in November and the other next April. So I’ve entered $10,000 in the November column.

Cash Flow Sample - Revenues

Cash flow projection close up of revenues entered

Add the revenues up and we’re looking at a very slim September with only $500 coming in. October is a bit better with $2,500 coming in. November is a big month, $11,000 will be deposited into the bank, but then in December, we’re back down to $3,500.

Already we can see that our cash fluctuates pretty dramatically.

Step 3: Enter your expenses

Now let’s enter our expenses. Pulling from our program and admin budgets, we know how much things are going to cost overall, but now we need to break them down into the months when we actually have to pay for them.

Starting with the concert, the venue deposit has to be paid two months in advance, then the month before the show, we have to pre-pay half of the fees for the lighting guy and our sound tech. The rest of the costs (posters, performer fees, mic rentals) will be paid out in November.

The Fundraiser is the same, with the costs of the event spreading over two months.

Staff salaries and admin costs are usually around the same every month, give or take. Remember, we’re not looking for super detailed numbers here, we just want an overall picture.

Now we total the expenses and we can see that they range from $3,450 in September to $6,450 in November.

Cash Flow Sample - Expenses

Close-up of expenses entered on cash flow projection

Last Step: Calculate ending bank balance

Now comes the fun part (yes, I think spreadsheet are fun, and I’m ok with my weirdness). Remember how we entered our bank balance at the beginning of September? With that beginning $5,000, we add the $500 in ticket sales and subtract the $3,450 in expenses, and we voila, we have a bank balance at the end of the month of $2,050. Yay! We will have cash in the bank at the end of the month!

The cash balance at the end of September becomes our beginning balance for October. And we repeat the process. We add in the $500 in ticket sales and the $2,000 grant, then subtract the program and admin costs, and in the end we have $600 left at the end of October. Ooh, that’s a little tighter than I would like, but as long as nothing unexpected happens we’ll be ok til November when the grant comes in.

Cash Flow Sample

Completed cash flow projection

And so on.

Doing a cash low projection is a bit of work. You may need to look at past bank statements and cheque stubs to see when large deposits and cheques were cashed. But it can give you an overall picture of when your money will come in and go out. And that information can sometimes impact the timing of your programs and more importantly, might help you sleep a bit better at night.

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