Cash flow forecasts are the key tool we can use to monitor our bank accounts. This is different from budget monitoring, which is retrospective – looking at previous months’ actual expenditure against budget. Schools, trusts and settings also try and forecast their in-year and reserves position at the end of their financial year. However, it rarely takes account of the position at the bank, and this is where cash flow forecasts can help. Cash flow forecasts look forward, usually to either the end of the financial year or on a 12-month rolling basis. At HfL Education, our finance business partners working with schools produce a bank forecast for the following three months. This allows the Headteacher to see if the school is likely to go overdrawn at the bank and to take action to avoid this by deferring spending or making cost reductions in the budget. However, is three months forecast sufficient? I have worked for a local authority that required its schools to do a 12-month cash flow forecast at the start of the year and for it to be considered by the governing body. However, the issue with this was that those schools forecasting a healthy bank balance never revisited their cash flow forecast until the following year, which defeats the object of cash flow forecasting.
It is a fundamental principle of cash flow forecasting that it must be live – regularly updated and reviewed so it presents as accurate a position as possible. The easiest way to create a cash flow forecast is to export your budget from either the finance system or budgeting software into an excel workbook. The budget should be profiled by month, allowing the opening, and closing bank balance for each month to be added as a formula. The next step is then to check each item to ensure only cash items are included and this is where reference to previous bank statements can help. Strategic interventions like this can pay real dividends by keeping schools on track as budgets tighten.
A focus on cash can really help schools, trusts and settings understand their future financial position so that any remedial action can be taken in plenty of time. Forewarned is forearmed.
