Cash Management

How Does Your Organization Measure Up?

When times get tough and resources are limited, not all of us have the ability to increase our borrowing capacity like the U.S. Government.  Given the uncertainty of the economy and the unknown factors that influence the markets in which we operate makes it key to evaluate and ensure you are running a fiscally responsible Organization.  Your financial health is the answer to staying afloat and continuing to provide the much needed services to the communities in which you operate. Now is as good a time as ever to evaluate your financial health – not just to manage current operations but to plan for the future success of your Organization.

Fiscal responsibility encompasses numerous hot topics; including strong internal controls to protect donated resources, enlisting qualified and diverse management team and board of directors to provide necessary oversight, etc.  However, the meat and potatoes of fiscal health begins with cash management.  Cash management includes creating realistic budgets, accurately projecting future cash flows, and continual analysis of the fore mentioned.  Analysis will help you identify what steps to take in order to take control over your cash flows to meet current and future need.   

Creating a realistic budget is based on how the Organization's plans to fulfill its stated purpose. The budget charts a direction for allocating and maximizing the use of resources.  Not-for-profits should pay special attention to the allocation of expenses by functional area to ensure programs are being charged appropriately to get a true picture of program outcome.  Over/Underallocating of expenses is a common financial reporting mistake that many not-for-profits make.  Analysis of budget to actual performance could reveal problems and, if performed timely will allow the board and staff to respond quickly to the circumstances.

After a budget is developed, not-for-profits should develop cash flow projections on a weekly or monthly basis to ensure there are available resources to finance current and future operations through the use of available funding measures.  The stability of the Organization relies heavily on its ability to pay its bills on a timely basis.  Due to the cyclical nature of most non-profits, the budgeting process plays a vital role in planning ahead to meet cash flow needs in slower periods of cash inflows.  The ability to anticipate your needs will give you the capability to foresee future cash flow deficits and give you time to plan the appropriate course of action to adjust expenditures accordingly or implement other adequate measures. 

Managing a cash flow deficit could be very stressful for an Organization, however knowing your options in advance can ease you through these painful times.  There are numerous techniques to use to help improve cash flow.  Here are a few suggestions: 

  • Delay payments to vendors – There are obvious expenses that cannot be deferred, such as payroll, payroll taxes, and insurance.  However, there may be expenses you can identify that can be cut completely or deferred until a later date.  Delaying payments to vendors can also be considered through analysis of the payment terms with your vendors compared to current payables management internally.  Understanding the advantages of discount rates for early payment vs. borrowing rates on your line of credit is something to consider.
  • Cut expenses – Do you have line items that are over-budget?  If so, understand the reason and consider what type of cuts should be made.
  • Borrow on a line of credit – It is never to early to develop relationships with banks and have an established line of credit available for your use in times of a cash flow crunch.
  • Speed up collections of accounts receivable – Review your internal procedures for billing – how quickly are you billing for services provided? Generate and review aging reports to ensure pro-active collection techniques are in place.  Do you have established credit policies and are they monitored? If possible, it doesn’t hurt to ask for upfront payments from government agencies or ask to rearrange disbursement schedules from foundations.
  • Increase sales – Challenge management to be accountable for efforts to increase sales and fundraising efforts.

If your Organization has managed to successfully generate cash flow surpluses, you should also have a plan in place to manage the use of these funds while taking into consideration operating cash flow reserve ratios. Options include:

  • Paying down debt facilities – consider interest rate savings
  • Invest in short-term investment instruments
  • Advance purchase of supplies at reduced rates

During these times of limited resources and increasing needs for the services that not-for-profits offer, planning ahead for future sustainability has never been more important.  Financial forecasting and monitoring should be implemented to ensure your Organization is taking the necessary steps to be prepared in all circumstances to meet your cash flow needs. 

Meaden & Moore’s Not-for-Profit Core Group is available to assist Organizations, such as yours, implement budgeting and cash flow forecasting.  We can also help you explore options to deal with your  cash flow deficits and/or surpluses to be the best steward of your resources.  To reach any office, please call (216) 241-3272.