Posted in NewsNotes Archive
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Nonprofit Finance 1.01
Cash Flow is the Life Blood of Your Organization Most nonprofits are very focused on their core mission. But all too often they do not have good financial controls in place to tell them if they will have the money to fulfill that mission. In the first of a series of articles on key elements of good financial discipline, I will focus on cash flow. Most companies, both for-profit and not-for-profit, look at their income statement as the barometer of the health of their business. Certainly the income statement does answer the question, “How much money did I make in the last period, after accounting for expenses, overhead, and such non-cash items such as depreciation on property, plant, and equipment?” But it is important to understand that the income statement has its limitations, and that there are many questions that the income statement cannot answer:
To answer those questions, you need to turn to the cash flow statement, which deals with flows of cash in and out of the business. The cash flow statement captures both the current operating results and the accompanying changes on your balance sheet. It determines the liquidity of your business, and whether or not you have enough money to pay your bills and invest in future growth. Who Cares About the Cash Flow Statement?
Cash Flow Forecasting – Be Proactive About Your Cash Flow One of the ways that you can get a handle on your cash flow is by doing a daily cash flow forecast. With a daily cash flow forecast, you can take control and anticipate problems before they become a crisis. I know a nonprofit organization whose CFO thought that daily cash flow forecasting meant calling the bank every morning to find out what the balance was, and what checks were being presented for payment. Or worse, he would wait for the bank to call him and tell him that they were overdrawn. In addition to the fact that this undermines the company’s credibility with the bank, it is just plain bad management. I introduced a robust and dynamic daily cash flow forecast. This took most of the uncertainty out of the ebbs and flows of cash, and the overdraws and daily conversations with the bank stopped. Cash management properly using a Cash Flow report is like a weather forecast. It focuses on regular inflows and outflows of cash. Businesses use these forecasts to best advantage by making regular bi-weekly payments and issuing invoices on a regular bi-weekly or weekly cycle. Holding payables back too long is similar to building a dam; the accumulating pressure finds any structural weakness and a hairline crack turns into a disaster. At the provider end, neglecting to invoice in a consistent manner means the well can run dry. Nonprofit businesses experience other storms that directly affect cash flow: expansion into new services, cuts (or expansions) in grant funding, overly aggressive hiring practices, cost increases, lender rate changes. The list can be long. But with proper forecasting and proactive management, you can start to take control of your organization’s future, and avoid the pitfalls. Ed Allon is a trusted advisor to small and midsized organizations and part-time CFO focused on making business more profitable and successful. He is a partner in B2B CFO® , and a featured resource in NEW’s online Resource Directory. Ed can be reached at 248.677.1159 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it . You can see his complete profile and other articles on his website. |
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U-M Development Career Chat—Careers in Philanthropy Are you interested in learning more about the profession of philanthropy? Join University of Michigan development professionals for mini workshops, resume review and networking. Learn more about the importance of philanthropy to U-M, and the variety of development positions that exist. Light refreshments.
Board Member Training: Serving on a Nonprofit Board
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Grants Administration Training
Contact: Alice N.G. MacDonaldChelsea Rhone, LLC 201 S. Main Street, 2nd Floor Ann Arbor, MI 48104
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