Cash Flow Forecasting

Increasing Importance

As municipalities face an extended period of declining revenues and rising costs, cash management becomes an increasingly important function. Utilizing cash reserves to maintain services, or incorrectly estimating the timing of cash needs can result in shortages of cash to respond to critical emergency or operational needs, including payroll, debt service payments, equipment failure, lawsuits or unplanned repairs. Ineffective cash management can also result in reduced interest earnings.

Solutions to Improve Cash Management

Improving the cash management function often includes two elements: appropriate financial policies governing cash reserves and an accurate, interactive cash flow forecast. A cash flow forecasting model typically serves as the foundation for effective policy development, and a model provides managers, treasurers and policy makers with information that can result in:

  • Increased returns on investments
  • Reduced short-term borrowing to meet cash flow needs
  • Improved management of internal cash transfers between funds
  • Understanding how new policies and mandates may impact cash position.

Cash flow forecasts, commonplace in most businesses, require regular updates and revisions as financial conditions, operational needs and larger economic factors change. For this reason, it is important that a cash flow forecast be designed to allow internal staff the ability to revise the forecast on an on-going basis. When developing a cash flow forecast, we create a spreadsheet model that provides lasting utility to the municipality.

In addition to cash flow modeling, local governments should regularly review fiscal policies to ensure cash reserve levels are appropriately established, and the use of cash for operating expenses, emergency needs and long-term investment are properly balanced. Municipal Analytics consultants can assist with policy review and development, as needed.

Contact Us: For more information on our cash flow forecasting, contact us at 734.623.8033.