5 min read
Looking into the Crystal Ball: Cash Flow Forecasting for Not-for-profits
Charities and not-for-profits (NFPs) have been particularly hard-hit by the general tightening of purse strings in the post-GFC years. Falling incomes and rising unemployment are enough to make even the most regular donors fickle. The 2016 NAB Charitable Giving Index report illustrates the hard truth that consumers are cutting back on non-essentials. And if that were not enough, federal funding, which in the past has been a reliable source for charities, is under threat of being drastically cut or even axed completely.
The unfavourable economic situation means NFPs have to compete for a decreasing pool of donation dollars, while trying to stay solvent. This can make it especially hard to predict anticipated spend and earnings over a time period. One of the must-have ingredients for predictable cash flows is regular budgeting and forecasting.
Getting Forecasting Right
Accurate forecasting is the first step. The golden rule for forecasting is to first identify all the variables and metrics that stand to impact cash flow. These are largely income and costs. The easiest to tackle at the outset is costs or cash outflows. Costs typically comprise of fixed and variable expenses for facilities, fundraising events, employee salaries, etc. Keeping a lid on costs is important and you can do that only when you know what your cash flows are. Next, we tackle cash inflows.
Forecasting Regular Giving
For most non-profits, cash inflows typically fluctuate throughout the year depending on donor acquisition and attrition, thereby making them notoriously difficult to predict. For instance, even for regular giving programs with an acquisition strategy, early donor attrition can often be as high as 50% over the first year. Nevertheless, it helps to use past data to project expected donor recruitment numbers and non-starter, upgrade and attrition rates.
Forecasting Cash Donations
Forecasting cash donors comes with its own set of challenges and is often more difficult than forecasting regular givers. This is because cash donors generally re-evaluate their decision to give each time they do so – and their behaviour is subject to a number of factors. While the principles still remain the same, we can approach this is by understanding not only donor behaviour, but also channel and campaign performance. This is where past data can provide some good markers around likelihood and probability.
Some things to remember
Keep in mind that forecasts and projections enable NFPs and charities to plan for every dollar. When you are building cash flow forecasts, it helps to keep the following points in mind:
- Regular giving programs are not only profitable but also aid better forecasting. Strive to convince your donors to join your recurring payments program.
- Keep track of wider economic trends and legislative changes so you can be prepared to manage and vary your campaigns accordingly.
- Don’t be afraid to adopt new technology as it can go a long way in alleviating time and resource demands.
- Planning your fundraisers and events around the time when you expect a large cash influx, such as from a government fund, can help you keep on top of your fixed costs.
At a minimum, forecasting is a monthly task and the more you do the better you become at fine-tuning the variables and anticipating trends. To learn more about cash flows and how to build a cash flow statement, download our Cash Flow Playbook. Several of our charity and not-for-profit clients use Ezidebit recurring payments. See how Ezidebit can work for you, too.