Most non-profits have recently experienced unpredictable economic trends that could cause those organizations to worry about meeting their financial obligations. As a non-profit leader, you can have the confidence to plan and take necessary actions by efficiently managing your cash flow.
What is Cash Flow Management?
Cash flow management is more than taking your annual budget and dividing by 12 to determine what you have each month. To get a more accurate snapshot, effective cash flow management includes analyzing cash inflows and outflows based on the timing of receipts and payments. Programs and timing of funding sources, such as trade shows and conventions, can increase operational costs as more staff may be necessary for the event. Further, in addition to your key programs and events, don’t forget about your supporting and fundraising activities and costs.
How to Manage Cash Flow
If your current software does not have any budgeting or forecasting capabilities, you can create a report using a grid, such as Microsoft Excel. Along the top, list all 12 months with sub-heads of “Actual” and “Projected.” Down the page, create rows for the following:
- Beginning Balance: The amount of cash you had at the start of each month
- Cash Inflows: Create separate line items for the largest income categories for each month and add all entries to calculate the total cash inflow
- Cash Outflows: Create separate line items for the largest expense categories and add all entries to calculate the total cash outflow
- Net Inflow/Outflow: Subtract your cash outflow from your cash inflow to determine net inflow or outflow
- Ending Balance: Add the beginning balance to the net inflow/outflow to determine your cash position for the next month
In addition to what’s already on your calendar for the year ahead, use historical data to help create your projections. Be realistic about when cash will actually come in, and not when you hope it will come in. Additionally, don’t forget to include funds for unexpected costs.
To complete your cash flow report, compile a total of your cash on hand and estimates of cash receipts and their due dates. You’ll also need to enter payment amounts and schedules for personnel expenses, including salaries, wage increases, taxes and benefits. Other data you’ll need includes consulting and professional services fees, occupancy charges and office charges, as well as financing costs and an “other” category.
Currently, some non-profits are using 18-month rolling average budgetary methods. You may find this method more beneficial for your organization and its programs.
Over time, the ability to successfully project and manage cash flows and positions will be key to your organization’s viability. To ensure that your reports are used to your organization’s best advantage, talk to your certified public accountant.