Author: Financial Management Resource Bureau
One of the critical responsibilities of a municipal treasurers is ensuring the availability of cash to cover expenditure obligations, and a cash flow budget is a valuable tool for carrying out this duty. Whereas some of a community’s most substantial revenue sources, like property taxes, are received in large lumpsums at specific points during the fiscal year, many expense obligations tend to be continuous, and this can, at certain times, result in cash shortfalls or surpluses. By projecting and tracking income and expense trends, a cash flow budget enables the treasurer to anticipate and efficiently address any impending gaps in cash sufficiency, and it can also highlight suitable times to invest surplus funds in order to maximize investment earnings.
An effective cash flow budget can be done using Excel, and DLS has created a template available for download. To begin the cash flow analysis, the treasurer should use data from the revenue reports and warrants issued in the past three years to calculate month-to-month average totals of all receipts and disbursements, being careful to recognize and factor out any unusual fluctuations connected to isolated, nonrecurring events. Based on appropriations in the adopted budget for the new year, the treasurer should then parcel out anticipated expenditures across the 12 months of the fiscal year. This outflow data should include the regular, repeated expenditures for payroll, benefits, operational expenses, contracted services, large payments to the retirement system and monthly debt service obligations, as well as the timing of all anticipated large, one-time expenditures, such as distinct capital purchases. The juxtaposition of these historical and budgeted datasets will allow the treasurer to make useful, realistic cash flow projections.
The treasurer should create the initial cash flow budget during the period between the adoption of a new annual budget by town meeting or city/town council and the start of the fiscal year on July 1. On a monthly basis throughout the course of the year, the treasurer should replace the projected estimates with actual revenues and expenditures and also adjust the forecast whenever warranted by unexpected circumstances.
When an upcoming period of insufficient liquidity is indicated, the treasurer must estimate the amount of cash needed to support expenses until adequate revenues can be realized. There are three main ways to address a projected shortfall. One is to liquidate general operating cash investments, though this decision must factor in any redemption fees, penalties, or income loss that would make another option more beneficial. Another is to borrow internally from a stabilization fund, again factoring any fees, penalties or income loss that may be associated with that fund’s investment. And the third option is to initiate a short-term borrowing through a revenue anticipation note (RAN). The treasurer must make sure to repay all internally or externally borrowed funds before the close of the fiscal year and should insert that repayment’s timing into a specific month within the cash flow budget. For more information related to cash flow budgeting, review the links below:
- DLS Best Practice Guidance: Cash Flow Forecasting and Short-Term Borrowing
- Informational Guideline Release 17-21: Borrowing
- State House Note Program webpage: State House Note Program and Other Borrowing Guidelines
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Editor: Dan Bertrand
Editorial Board: Tracy Callahan, Sean Cronin, Janie Dretler, Jessica Ferry, Christopher Ketchen, Paula King, Jen McAllister, Brianna Ortiz, and Tony Rassias
| Date published: | November 20, 2025 |
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