What does a cash flow forecast do in budgeting?

• A. Only for projecting tax revenue.
• B. Projects timing of receipts and expenditures to ensure liquidity; helps avoid shortfalls and informs financing decisions.
• C. To determine which staff to hire.
• D. Solely for long-term investment planning.

Answer: (B)

The main idea is that a cash flow forecast measures the timing of money coming in and going out, so you can manage liquidity in budgeting. By projecting when receipts (like state funding, tuition, grants) and payments (payroll, supplier invoices, debt service) will occur over a period, you can see potential gaps where cash might be tight. This awareness lets you take proactive steps to avoid shortfalls, such as delaying nonessential expenditures, accelerating receipts, or arranging short-term financing. It also guides financing decisions—telling you when you’ll likely need extra funds and what form of financing makes sense. While tax revenue is a part of budgeting, the forecast’s purpose is broader: to ensure the organization always has enough cash to meet obligations and to plan financing around that liquidity. It’s not solely about staff hiring or long-term investments, which are handled by other budgeting tools.