Cashflow management

Introduction

Cashflow management is essential for a young organisation. Stemming from your budget this is really where you will be able to assess your organisations fiscal performance. Always keep a close eye on your cashflows.

Why

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This toolkit is useful when:

• Organisation needs to increase capacity to manage finances effectively
• Organisation needs to plan, develop and use cashflows effectively
• Organisation needs to assess and monitor financial risk

What you can expect

This step by step guide will help you in including the necessary stakeholders, using the correct formats, and creating a high quality final functional tool to manage your cashflow. An cashflow is formed out of your budget and will help guide your organisation in your income requirements, spending levels, and how well you will be able to fulfill on your funding for the year.

Step 1: Defining scope

• Discuss the scope of the cashflow with the Leadership and/or Financial Manager.
• Decide if you will create an operations cashflow, a program cashflow or annual budget cashflow.
• The cashflow is based on the existing annual budget.
• Watch this webinar from the Indian NGO Atma to learn more about Effective Cashflow Management for NGOs:

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Step 2: Identifying key people

• Along with the leader, involve a staff member, associate or consultant who is competent in accounts and finance should be involved in the process.
• Involve staff who will actually handle and implement the cashflow as much as possible.

Step 3: Establish Need

• Before you start working on financial management, fully understand all its components: budgeting, cash flow, services, monitoring, financial controls and financial reporting.
• To set up or improve these systems requires open access to all financial information in a transparent manner. Work closely with all staff involved to facilitate this.

Step 4: Understanding the budget

• Review the existing budget, strategies and plans of the organisation or project.
• The better you understand the cost and income structure, the easier it will be to create a cashflow.
• Make sure that budget is detailed enough and includes subtotals.

Step 5: Cashflow Framework

Create a master sheet for the whole cashflow calculations based on the understanding of budget.
The excel sheet includes at least one line that reflects:

• total income
• total expenses
• a line for the cashflow itself

Step 6: Cashflow Information

• Fill in the framework with the figures that you get from the annual budget.
• Remember to add the existing money on your bank account at when you do the first entry.

Step 7: Calculating the Cashflow

• First, the opening balance has to be calculated in the first month column by adding all the cash in hand plus cash in the bank.
• The first column is completed by adding the respective inflows and outflows of cash for that month.
• The resulting closing balance is carried forward to the next month and the process repeated until all the columns are complete.

Step 8: Reviewing the Cashflow

• Make sure all the calculations are correct before submitting!
• Review the cashflow together with the leader and accounts lead.
• Make changes to it if needed.
• Explain and train relevant staff on how to understand and use the cashflow in the daily operations.

Step 9: Monitoring

• Help monitor income and expenditure regularly. Work with staff to make adjustments and develop strategies on how to overcome or avoid monthly deficits.
• Update the cashflow calculations in case budget changes (usually this happens automatically because cells should be linked to the budget).

Key To Success

• List out all of the costs, people, resources that are listed in the budget in order to understand sources of costs and income.
• Display the totals of monthly costs and income in a compact but understandable way.
• Analyse the cashflow regularly to understand your organisation’s performance and foresee financial risks.
• Get feedback on your cashflow - has everything that needs to be included been included?

Challenges

Organisation may have limited experience with formalised cashflows and/or do not yet see the importance.