Five ways high quality cash flow forecasts can benefit your charity
Five ways high quality cash flow forecasts can benefit your charity
Five ways high quality cash flow forecasts can benefit your charity
Charities, more than any other sector, have faced bitter challenges over the past few years – between the COVID-19 pandemic and the cost-of-living crisis, there is a tension between an increase in demand for their services at a time when income is strained as costs increase. High quality charity cash flow forecasts and scenarios are essential to protect charitable activities and are invaluable in prioritising resources.
Below are five ways a good cash flow forecast could make a real difference to your charity. You can also view a short demo of out charity cashflow forecasting tool to help prepare your cash flow statement.
1. Strengthen internal alignment
4. Evidence of sound management processes
1. Strengthen internal management alignment
In some charities, the planning process can be relatively ad hoc with individual managers having differing priorities and making their own assumptions. As charities change activities and manage finite resources, a well-defined approach to forecasting, involving key stakeholders, allows activities to be aligned and prioritised to maximise impact. A robust process engages internal teams to help them understand decisions being made and consider alternatives.
2. Build resilience
We live in uncertain times politically, economically and environmentally. Scenario planning helps charities consider uncertain outcomes and prepare for future events, enabling them to adapt quicker and in a more measured way. For example, prolonged social distancing or changes to working patterns can be considered and used to identify where future investment or resources may be needed. Forecasts can be adjusted for new assumptions to identify potential cashflow pressure points – a form of risk management that helps to make a charity more resilient.
3. Increase understanding
Preparing a cash flow forecast helps management identify detailed costs, assess project performance and capture key assumptions and cost drivers. These can then be monitored and controlled to increase impact, avoid unnecessary costs, prioritise initiatives or manage underlying risks. Linking these to ongoing monitoring through key performance indicators (KPIs) will help charities act quicker when events take place or if problems arise. For example, an organisation we worked with was able to revisit historic costs that were less relevant considering new ways of working and freed up much needed resource.
4. Generate evidence of sound management processes
Generating timely, effective cash flow forecasts doesn’t just help management teams run the organisation, but also builds up a track record of sound processes being applied. This allows trustees and stakeholders to monitor effectively. It can protect executive teams making tough decisions quickly and justify their rationale at the time. Good governance protects the decision makers, as well as the organisation.
5. Support a managed closure
Not every organisation or division will be in growth mode. Some management teams may be looking to close down all or part of their operations in response to changes. In addition, charities need to take additional measures if their reserves fall below their policy levels. If they want to close activities on their own terms, then it’s important to think through details such as what assets might be liquidated and the cost of any redundancies. Identifying these issues early allows a managed process and delivers the best outcomes to all involved.
Improve your cash flow forecast today
Cash flow forecasting is a vital component of good governance and charity planning – and plays a key role in providing management teams with insight into future issues that might arise. It’s clear to see that there are huge benefits of forecasting, particularly if done well and regularly. Taking advice and having an objective view from experts who can review your forecasts through an external stakeholder lens can add real value and contribute to your commercial objectives. Combined with the latest finance and accounting technology, this approach can make a real difference to your charity.
We have developed a unique way of forecasting to allow your charity to build and model your own forecasts, ensuring you can understand the key drivers. The approach builds a three-way forecast (cash flow, income and expenditure and balance sheet) and enables side-by-side comparison of different scenarios, so you can decide the best strategy for your charity in uncertain times.
With this tool, you can control your cash flow forecasts yourself for a much cheaper, monthly licence fee. Our advisers will set you up with the tool, teach you how to use it and apply it to your own circumstances.
The tool is then at your disposal for the rest of the year, with our charity expert advisors on hand to help with any questions.