Is Your Cash Flow Like a Stream or an Ocean?

Organizations usually budget for the entire year. But an annual budget gives the false impression that cash flows along at a steady rate, like a Stream. In reality, cash flows more like an Ocean. The tide comes in and goes out. The water’s edge along the beach is uneven.


Mother Nature is in charge of managing water flow. Managing cash flow, not so much. Financial professionals help organizations project revenue and expenses by month, week, or pay period. Those financial folks need the right inputs from you to produce clear and reliable cash flow projections to manage the organization’s finances and future.


Three tips to get the right inputs for your cash flow projections:


  1. Start with your Documents


Revenue and expenses connected to a contract, lease, or other document are a good place to start because payment amounts and frequency are defined. One example is compensation — wages, benefits, and employment taxes. Other examples are retainers, rent, and recurring service agreements. Be sure to put payments to the correct payment period (e.g., some months have an extra payroll period).


  1. Look to the Past


Last year’s financial transaction details are a gold mine for projecting cash flow where revenue and expenses vary from month to month. Look at what amounts were actually received or paid in each month, and estimate the expected amounts by category for each future month. Make adjustments based on any changes in circumstances.


  1. Invest for the Future


After plugging in all the known revenue and expenses and estimating the variable amounts, sit back and examine the results. Are there new revenue or expense categories to include? Need funds for technology or expertise? Cash flow projections should include investments in your organization’s future.


Annual budgets assume that your cash flows like a continuous Stream. Reality is more like the ebb and flow of the Ocean’s tide. Cash flow projections that recognize revenue and expense “tides” are a powerful tool for managing an organization’s finances.