Nonprofit Cash Flow: Nine Tips for Better Financial Management

Of course, you must always be careful that you do not cancel a program or location that is at the core of your mission. You will need time to think through alternatives, and good cash flow projections will give you that time. While many training sessions for fundraising suggest that you quantify what specifically will be paid through a donation, these tactics should be used advisedly. One fundraising strategy that has worked well is to quantify in the solicitation that half of your donation will go to the “Children’s Shelter.” So the balance can be used for other purposes necessary for the organization’s operations. Obviously, you also need purchasing policies that tie approval of purchased items over a certain dollar amount to what you are likely to have in your budget.

Stretch Every Dollar by Focusing on Programs That Maximize Your ROI

• Your board may require, or at least make it a practice to hear a reporting of the organization’s financial position and statement of activities at every board meeting.
• In terms of revenue, you need to also systematically ensure, for instance, that the letter confirming that wonderful new $10,000 contribution has a specific date by which payment will be made.
• A Quickbooks report is a good starting point, but it’s important to work with an experienced nonprofit accounting firm to build a more advanced model that projects the future financial trajectory of your organization.
• Expanding your donation options to include non-cash asset gifts, especially stock donations, can greatly increase your overall fundraising capacity.
• Naturally, these limited reserves restrict an organization’s efforts to manage even their day-to-day operations, let alone invest in long-term future plans.
• We’re here to help with your business checks, debit cards, online and mobile banking and other services.
• A financial policy is a formal description of how your board handles issues like paying down debts, allotting cash reserves, who can handle money, and how you deposit and withdraw funds.

Probably the worst-case scenario is delaying payroll for some or all staff, which could jeopardize the organization’s programs as well as potentially raise legal issues. Far better to understand your business model and budget, and plan in such a way as to establish a solid cash cushion for the lean times. This means it’s crucial not only to manage your organization’s reserve funds well but also to stay aware of the current financial best practices and trends in the nonprofit sector. We’ve compiled this list of up-to-date nonprofit cash flow statement statistics and trends to help you get started. Cash flow management is critical for the sustainability and success of nonprofit organizations. While these entities operate with a mission-driven focus, they must also navigate financial challenges effectively to fulfill their objectives.

Keys to improving cash flow management for nonprofit organizations

Staff across the organization may also be asked to help manage challenges as well—perhaps by rethinking timing of certain expenses or working on accelerating collection of cash from donors or customers. Being informed, strategic, and collaborative in cash flow management can help to ensure that a nonprofit’s long-term strategy isn’t derailed by avoidable—if inevitable—short-term obstacles. But this isn’t to say that nonprofit leaders are purely at the mercy of the business model; understanding the way the model impacts cash flow is the first step toward planning for and managing it. While these are all essential elements to understanding an organization’s finances and business model, such conversations sometimes miss one critical component of any business—namely, day-to-day liquidity. This article will discuss ways in which cash flow impacts—and is impacted by—the way a nonprofit organization does its business. The fact that nonprofits typically rely on more than one revenue stream makes cash flow management a complicated task.

Strategy 1: Do not rely on just one funding source.

By understanding cash flow and planning ahead, we can avoid problems and shortages, provide stability to our organizations, and take advantage of opportunities to purchase capital assets and build organizational capacity. The frequency will depend on how closely the organization’s cash flow needs to be monitored. This resource https://www.bookstime.com/ will help your nonprofit manage your cash flow by explaining why, when, and how. Additionally, this resource provides management strategies to help your nonprofit prevent cash flow shortages. At one of my former organizations, budgeting was initially done just once a year as a part of the annual approval process.

• This is especially important during times in which many things are in flux, as is the case during a global pandemic, for example.
• There are many benefits for your nonprofit in having formal financial policies and procedures.
• Your board portal offers a secure platform for your board or financial services committee to do the preliminary work of fleshing out your policies and procedures.
• Cash flow is simply the mix—and timing—of cash receipts into and cash payments out of an organization’s accounts.
• Cash reserves are a good indicator of a nonprofit’s overall financial health and sustainability, but from an even more practical perspective they are an essential resource for managing cash flow and payment schedules.

We’ll look at each one in turn before discussing some strategies for addressing the almost inevitable occasions when the cash flowing in doesn’t match the cash flowing out. Keep a “rainy day” fund for unexpected emergencies or business interruptions, such as an economic downturn or the loss of a key funding source. A cash reserve can also be used to cover planned future cash outlays, such as the cost to replace an aging roof or upgrade technology. A cash reserve can even be accumulated to pre-fund a new staff position so the position is secure for a year or more while permanent funding is developed. It’s not only a smart decision to effectively manage and steward your organization’s reserve funds—it’s also the responsible choice. Keeping your reserve funds in traditional savings accounts won’t benefit your organization in the long run.

• This makes treasury bills an appealing low-risk option for many nonprofit cash management strategies.
• This means it’s crucial not only to manage your organization’s reserve funds well but also to stay aware of the current financial best practices and trends in the nonprofit sector.
• Propel Nonprofits is an intermediary organization and federally certified community development financial institution (CDFI).
• To get a better feel for your current cash flow status and to detect any seasonal trends in your nonprofit’s cash flow, we recommend looking at both your regular cash flow statement and a trailing twelve-month (TTM) cash flow statement.

Seeking more FDIC coverage through brokerage accounts

Additionally, the statement of cash flows is used by for-profit and nonprofit organizations alike, all of which refer to it using similar terminology (statement of cash flows, cash flow statement, or cash flow report). Similarly to other financial statements, it summarizes the data stored in your organization’s accounting system so it’s easier to interpret. Most nonprofits compile this report on a monthly basis, since it helps keep their spending and revenue generation aligned with their annual operating budgets. Cash from contributions and donations doesn’t come with the bureaucratic delays of government funding or the up-front outlays required to generate earned income. But organizations whose revenue model is primarily driven by voluntary contributions often face another reality of managing cash, which is that cash inflow can be very concentrated at a particular point (or points) within the year. For example, an organization that generates a significant portion of its income from an annual gala-type fundraiser may have an event in spring whose receipts may have to carry it much of the way until the next spring.

More About Financial Management

Nonprofit Banking Basics: 4 Tips for Successful Cash Management

• Having little to no cash reserve leaves you extremely vulnerable to failure as a result of cash flow shortages and unforeseen expenses.
• One of the ways you can protect your organization is by ensuring that everything happens out in the open.
• Nonprofit investment advisors are financial experts with a fiduciary responsibility to work in your organization’s best interest.
• Corporate and private donors have cut back on their contributions, or may have retargeted them.
• They also enable nonprofits to build cash reserves that ensure they can plan for the long term while remaining resilient in the face of unexpected financial challenges.
• Though it’s a bold move in a competitive landscape, having an honest, upfront conversation with donors about your overhead expenses may well prove worthwhile.