What is it?
Cash flow refers to the movement of money in and out of your charity's bank account over time. A cash flow forecast is a tool that predicts when money will actually be received and paid out, month by month.
This is different from a budget, which shows planned income and expenditure overall, but does not necessarily show when that money will actually move. A charity can have a healthy budget on paper while still running short of cash at a particular point in the year.
Why does it matter?
Cash flow problems are one of the most common causes of financial distress for small charities, even ones that are otherwise financially sound. Grant payments can be delayed, invoices can take time to be paid, and large costs sometimes fall due before the matching income has arrived.
A cash flow forecast helps you anticipate these gaps in advance, giving you time to plan, whether that means delaying a payment, drawing on reserves, or having an honest conversation with a funder.
Who needs to know?
Finance staff typically prepare and monitor cash flow forecasts, but trustees should review them regularly, particularly the treasurer, as part of their oversight of financial resilience.
Anyone responsible for timing major payments or anticipating when grant instalments will land should understand how their decisions affect the charity's cash position.
Where do we start?
Start with a simple monthly forecast, listing expected cash receipts (such as confirmed grant instalments, donations, or invoice payments) and expected cash payments (such as salaries, rent, and supplier invoices) for each month of the year.
- Be realistic, and where possible conservative, about when income will actually land, not when it is technically due
- Include all known large or irregular payments, such as insurance renewals or quarterly costs
- Carry forward a running cash balance each month so you can see at a glance which months may be tight
- Update the forecast regularly as actual figures come in, rather than treating it as a one-off exercise
- Flag any anticipated shortfall to trustees early, so there is time to plan a response
If cash flow gaps are a recurring issue, it may be worth discussing this with your bank, exploring a small reserve specifically for cash flow smoothing, or reviewing your reserves policy more broadly.