Board Governance: Do we need to project our cash flows?

Board Governance Cash Flow Projections

Organization’s typically record its finances on the accrual basis, which means that the financial records include all transactions, regardless of whether you have physically paid or received the cash.

Cash flow projections provide information to the Board and management about what cash is coming into the organization and what cash will be flowing out. The timing of these “ins” and “outs” don’t always match exactly, and so, the organization could be in the position of not having enough cash on hand to pay on going costs. Typically organizations with lots of cash on hand and stable operations do not need to prepare cash flow projections. However, there are circumstances when preparing a projection can be useful for decision making, for example:

  • There is limited cash on hand or frequent use of operating lines of credit throughout the year,
  • The organization is operating on a break even basis,
  • The organization is planning a significant expansion to its activities,
  • The organization is planning a significant capital project,
  • The organization is concerned that expected grants or funding will not be received,
  • The organization will be requesting financing from a financial institution.

The projection can provide information to make strategic and operational decisions. Projections may be prepared and updated daily, weekly, monthly or annually, depending on the amount of cash monitoring that is required for the organization’s circumstances. If cash flow management is a key risk of the organization, projections should be reported to the Board on a regular basis.

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