Cash Flow Management For Non-Profits Presented by Theresa F. Weber

1. Cash Flow Management For Non-Profits Presented by Theresa F. Weber Alexandria Consulting Team (ACT) LLC www.alexandriaconsult.com

2. Agenda • Sources and Uses of Cash II. Income Statement vs. Cash Flow Statement III. Budget vs. Cash Flow Forecast IV. Strategies for Cash Flow Shortfalls MEET U.S.

3. 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 don’t have it? • The business (whether for-profit or non-profit) will grind to a halt resulting in insolvency and bankruptcy MEET U.S.

4. Cash Flow Management • Insures that funds are available to pay expenses • Balanced Budget ≠ Cash • Income ≠ Cash Gives you the ability to carry out your mission MEET U.S.

5. Non-Profit Financial Statements • Statement of Financial Position (Balance Sheet) • Statement of Activities and Changes in Net Assets (Income statement) • Statement of Cash Flows MEET U.S.

6. 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 MEET U.S.

7. 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 Income Statement and Balance Sheet can be a Source of Cash MEET U.S.

8. 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 Income Statement and Balance Sheet can be a Use of Cash MEET U.S.

9. Working Capital Affects Cash • Cash Will INCREASE If: • Collect (reduce) Receivables • Increase Accounts Payable • Reduce Inventory MEET U.S.

10. Working Capital Affects Cash • Cash Will DECREASE If: • Increase Receivables • Reduce (Pay) Accounts Payable • Increase Inventory MEET U.S.

11. 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 MEET U.S.

12. 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 MEET U.S.

13. Budget vs. Cash Flow Forecast • Budget – Static picture of how much cash you 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 MEET U.S.

14. Cash Flow ForecastProcess 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 • Don’t just divide by 12 • Analyze A/R aging schedule to help determine the timing of revenue MEET U.S.

15. Cash Flow ForecastProcess (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? MEET U.S.

16. Cash Flow ForecastProcess (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 MEET U.S.

17. 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 MEET U.S.

18. 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 MEET U.S.

19. 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 MEET U.S.

20. 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 MEET U.S.

21. 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 MEET U.S.

22. Strategies & Tactics to Maximize Cash Flow CASH IS KING MEET U.S.

23. Conclusion Managing operations to maximize cash flow reduces the likelihood of a cash crisis MEET U.S.