INTRODUCTION
Think of cash-flow as the heartbeat of your water co-op, you want it to be steady, predictable and strong. After all, it’s essential for keeping the whole system running. Even water co-ops with balanced budgets can run into problems if cash isn’t available when bills come due.
To manage cash-flow effectively, a Board needs to be able to:
- Prepare a cash-flow projection alongside the budget and spot pinch points where money might be tight
- Understand when members will be billed and when the money will flow into the co-op
- Keep a financial cushion in the operating account, and build a reserve fund
- Monitor cash-flow regularly, and plan for the unexpected
CASH FLOW BASICS
CASH IN (REVENUE)
- Member payments for water usage and a percentage of admin costs
- Connection fees or construction fees from new members
- Secondary income if allowed (like leasing land or equipment)
CASH OUT (EXPENSES)
- Operating costs like power, insurance, office expenses
- Maintenance costs like repairs, service calls, routine upkeep
- Capital costs for upgrades or major infrastructure replacement
- Debt repayment if applicable
- Transfers to the reserve fund
COMMON CASH FLOW CHALLENGES FOR RURAL WATER CO-OPS
Rural water co-ops were basically created because other providers know how challenging it would be to deliver service to your members. Rural water co-ops often face cash flow challenges such as delayed member payments, seasonal revenue changes, or sudden increases in costs. The key is to anticipate these challenges and plan accordingly.
In your regular Board meetings, everyone should be reviewing cash flow reports and asking questions to get a better understanding of the water co-op’s month-to-month financial situation. Don’t be afraid to ask the Treasurer: Is there anytime this year we expect to be tight on funds?
Water co-ops run on very thin profit margins. Swings in seasonal water usage or unexpected increases in insurance premiums or power prices can compress margins even more.
BEST PRACTICE
Forecast your water co-op’s monthly cash flow and review it regularly as a Board.
Consider if it works better for your members and water co-op to collect member payments annually, monthly or at another frequency. Establish clear policies for overdue accounts to protect the co-op’s cash flow and track overdue accounts to help members get back on track.
Maintain a financial buffer in your water co-op’s regular operating account
CASH FLOW VS PROFIT
Don’t confuse cash flow with profit. Any business or service provider can run a balanced budget (revenue = expenses) and still run short on cash.
Sometimes capital projects require upfront payment before funding arrives. Maybe your water co-op pays some of its expenses up-front in a lump sum payment, and bills members monthly, or vise-versa.
BEST PRACTICE
Boards should track both budget and cash flow in their regular Board meetings. Review the budget to see if the water co-op is on plan overall, and monitor cash flow to ensure the right amount of money is in the bank account each month.