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Cash Flow Management

For Non-Profits

Presented by
Theresa F. Weber
Alexandria Consulting Team (ACT) LLC
www.alexandriaconsult.com

Agenda
I.
II.

III.
IV.

Sources and Uses of


Cash
Income Statement
vs. Cash Flow
Statement
Budget vs. Cash
Flow Forecast
Strategies for Cash
Flow Shortfalls

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What is Cash?
What do accountants mean by cash?
Money on hand (coins and notes)
Money in bank accounts
And even investments which can be
immediately realized

What happens if we dont have it?


The business (whether for-profit or nonprofit) will grind to a halt resulting in
insolvency and bankruptcy

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Cash Flow Management


Gives you the ability to
carry out your mission

Insures that funds are available to


pay expenses
Balanced Budget Cash
Income Cash
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Non-Profit Financial
Statements

Statement of Financial Position

(Balance

Sheet)

Statement of Activities and Changes in


Net Assets (Income statement)
Statement of Cash Flows

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Handouts
Excel Spreadsheets for a Sample Organization
Income Statement
Balance Sheet
Cash Flow Fill In
Cash Flow Answer
Budget
Cash Flow Forecast Fill In
Cash Flow Forecast - Answer

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Source of Cash
Income Statement and
Balance Sheet can be a
Source of Cash

Operations
Revenue Income Statement Items
Includes program service revenue,
contributions/grants received

Working Capital Balance Sheet Items


Accounts receivables and accounts
payables

Sale of Assets
Property, Plant and Equipment

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Use of Cash
Income Statement and
Balance Sheet can be a
Use of Cash

Operations
Expenses Income Statement
Includes rent, insurance, salaries and
program expenses
Adjusted for non-cash expenses depreciation

Working Capital Balance Sheet


Accounts receivables and accounts
payables

Purchase of Assets
Property, Plant and Equipment
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Working Capital Affects


Cash
Cash Will INCREASE If:
Collect (reduce)
Receivables
Increase Accounts Payable
Reduce Inventory

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Working Capital Affects


Cash
Cash Will
DECREASE If:
Increase
Receivables
Reduce (Pay)
Accounts Payable
Increase Inventory

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Income to Cash Flow Statement

+ Operating Income
+ Loan Proceeds
- Loan Principal Payments
+ Depreciation
- Purchase Furniture and Equipment
+ Sale of Furniture and Equipment
Changes in working capital
+ Decrease in A/R
+ Increase in A/P
+ Decrease inventory
- Increase in A/R
- Decrease in A/P
- Increase inventory

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What have we seen so far?


Non-profit does not mean non-cash
generating
Positive income or a balanced budget
does not equal cash
Non-profits need to be entrepreneurial
in order to meet their mission

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Budget vs. Cash Flow


Budget Static picture of how much cash you
Forecast
plan to generate and how you will spend your
funds
Accrual accounting
One-year plan

Cash Flow Forecast Dynamic tool that


details cash inflows and outflows over a
period of time
Cash accounting
12 one-month forecasts
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Cash Flow Forecast


Process
1) List your regular cash sources and uses
Current year budget, prior year financial
statements, bank records and payroll records

2) List your one-time cash sources and uses


Capital budget
Prior year pledges

3) Identify expected dates revenue will be


received and expenses paid
Dont just divide by 12
Analyze A/R aging schedule to help determine the
timing of revenue

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Cash Flow Forecast


Process (cont.)
4) Examine cash sources vs. uses on a
monthly basis
Review all expenses Is there a purpose
to each expense?
Review revenues Are you confident that
the revenue expected will arrive on time?
Use conservative assumptions for unidentified
grants/contributions or contracts

Are you forecasting any cash flow


shortages?
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Cash Flow Forecast


Process (cont.)
5) Identify cash sources and uses that
you have some control over
While payroll, taxes and rent are required
at a specific date, other expenses may be
able to be delayed
By working with your customers, you may
be able to speed up the payment of
receivables
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Strategies for Cash Flow


Shortfalls
Determine if it is a timing problem or
terminal problem
If timing

Speed up receipt of income

Negotiate better terms on grants or contracts


Work with problem customers
Accelerate or expand fund raising
Introduce new payment terms, discount for early
payments, use of credit cards

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Strategies for Cash Flow


Shortfalls
(cont.)
If timing

Slow down payments


Negotiate longer terms with some of your bigger
vendors
Delay the purchase of furniture and equipment
Delay staff additions and salary increases
Delay new programs or events

Use volunteers or interns


Obtain a short term loan

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Strategies for Cash Flow


Shortfalls (cont.)
If terminal

Increase cash receipts


Review products and services offered. Are they
properly priced for the market?
Identify new markets and services
Encourage large supporters to fund cash flow
deficit
Sell unused assets

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Strategies for Cash Flow


Shortfalls (cont.)
If terminal

Decrease expenses
Analyze products and services. Can some be
done more efficiently?
Review all expenses to determine which are
not necessary
Expand use of volunteers and interns
Reduce benefits
Reduce staff and/or salaries
Close facilities and reduce services

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Tactics for Avoiding Cash


Flow Problems

Prepare accurate cash flow


forecast
Review forecast to budget on a
monthly basis
Adjust forecast as changes occur
Maintain good relationships with
customers and vendors
Build up cash reserves over time
Obtain a line of credit from the
bank
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Strategies & Tactics to


Maximize Cash Flow

CASH IS KING

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Conclusion

Managing operations to maximize cash flow


reduces the likelihood of a cash crisis

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