Cash Flow ManagementFor Non-Profits

Presented byTheresa F. Weber

Alexandria Consulting Team (ACT) LLCwww.alexandriaconsult.com

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Agenda

I.I. Sources and Uses of Sources and Uses of Cash Cash

II.II. Income Statement Income Statement vs. Cash Flow vs. Cash Flow StatementStatement

III.III. Budget vs. Cash Budget vs. Cash Flow ForecastFlow Forecast

IV.IV. Strategies for Cash Strategies for Cash Flow Shortfalls 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 don’t have it?– The business (whether for-profit or non-

profit) will grind to a halt resulting in insolvency and bankruptcy

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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

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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

• 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

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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

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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 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

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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

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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?

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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

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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