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10 Key Steps For Managing School District Investments: | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | Glossary |

4. Know how much you have to invest through cash flow forecasting.

Cash flow forecasting involves identifying the amount of money you have available each day, month and year and estimating the amount of revenue you expect to receive from each source and when you expect to receive it, as well as the expenditures you expect.

Revenues
The first step in cash flow forecasting is estimating major revenues, not only by year, but also by month, week or day where possible. State payments to the district are the easiest to estimate. The state sends a schedule of payments report to each district that outlines the amount the district will receive and the payment schedule for the year.

Districts should not include money related to debt service payments and bond proceeds when preparing a cash flow forecast since these funds and the associated expenses are subject to different laws and guidelines.

Federal dollars may come in the form of payments made directly to the district or through the Texas Education Agency (TEA) or the Regional Education Service Centers. Historic information and current program offerings will play a direct role in current estimates.

Local revenues from property taxes are the next to estimate. Annual historic information on tax collection rates by month and day as well as delinquent tax collection rates can be obtained from the tax collection offices and verified through deposits made in previous years. Adjustments are then made to the previous year numbers based on the current tax rate and appraisals.

Lastly, all other revenue sources can be grouped and estimated. These revenues might include such things as payments for meals, receipts from ticket sales at sporting events or any number of other sources. Again, historic information from the general ledger about the amount and frequency of revenues should be adjusted with assistance from the people who are administering the programs.

Expenditures
Next, the expenditures must be estimated, and again, those expenditures must be tracked by month or by shorter periods if they are to be useful.

Payroll will undoubtedly be the most significant expenditure to be tracked. Most districts have multiple pay periods; a monthly payroll for professional employees, a bi-weekly or bi-monthly payroll for auxiliary employees, and so forth. Some are fairly consistent from pay period to pay period, while others fluctuate. And, the amount paid to employees is not the only expenditure associated with payroll. There are also benefits, state and federal withholding amounts, and optional withholdings that must be included in an analysis.

Expenditures for goods and services also fluctuate throughout the year, depending on when orders are placed and received. Estimates will not be perfect, but careful analysis of the revenues versus the expected expenditures will allow the district to invest every possible dollar. And in the worst case scenario, cash flow forecasting will allow the district to know well in advance that borrowing will be necessary, and for how long the debt will be needed before revenues catch up with the expenditures.

Analysis
Some districts have approached cash flow forecasting with sophisticated software that will produce a wide variety of reports; others do their forecasting with a spreadsheet. All analysis is the result of building on historical data. Once the structure or spreadsheet is built, each year’s new data can be added to give a better forecast and to eliminate single year aberrations.

TEA’s Financial Accountability System Resource Guide (FASRG) contains a simple spreadsheet. The FASRG can be found on the Texas Education Agency Web site at http://www.tea.state.tx.us/school.finance/index.html#audit).

In either case, it is not the software that is critical to the process; it is the depth of information entered into the spreadsheet that is important. Initial forecasts may be crude, as the person who gathers the information becomes more experienced, the quality of the information will improve and its value to the district will increase.

Additional Resources:

Below is a list of additional resources you may find helpful. Information in the documents and URLs listed below are not endorsed by this agency, but only provided as resource material. For more information on these resources, consult the bibliography.

Focus on Cash Flow Forecasting
(AJ Capital Corporation)
A short overview of cash flow forecasting: rates, length of investment and importance of conservatism in investing.

Cash Budgeting and Investing Program
(North East ISD)
For illustration purposes only, North East ISD’s cash budgeting and investing procedures and controls, including weekly cash flow forecasting.

IMPORTANT NOTICE: The information in this document is presented solely as technical assistance and as a resource available to school districts. The information does not serve as a substitute for legal advice nor replace the independent judgement of a district's governing body concerning its investments. A district should consult its attorney or other appropriate counsel such as its investment adviser to resolve questions about its investment transactions.