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Ten Pointers on Nonprofit Cash Management

We kicked off our Nonprofit Chart of Accounts Grand Tour last week with an overview of cash.

While mission is the heart, cash is the lifeblood of a nonprofit organization. All nonprofits must manage cash to survive and thrive. To that end, we offer you the following list of ten pointers on managing cash.

1. Reduce cash leaks resulting from inefficiencies.

Inefficiences can be found in program operations, administration or fund development. Step back occasionally and question why you do what you do and how you do it. Could the end result be achieved another way? Is there new technology or software that could make a process easier? We recently helped a large organization move from pencil-and-paper bank reconciliations to completing bank reconciliations in QuickBooks, a far quicker (and better) method that will reduce hourly staff cost. The first rule of cash is don’t throw it away!

2. Maintain good internal controls.

Internal controls are procedures put in place to catch or prevent errors and fraud. As an example, good internal controls over credit cards could minimize the possibility of a staff person using an organization credit card for personal purchases. (Sadly we’ve seen this happen several times over the years.)

3. Close unneeded cash accounts.

Maintaining multiple cash accounts requires time and effort and can increase the likelihood of errors. If a separate bank account for restricted funds is not required, we normally do not recommend opening one. You should be able to rely on your accounting system to track restricted cash.

4. Understand restricted cash.

If your organization has received cash from foundations or other donors that is restricted for a particular purpose, you cannot spend that cash on other purposes, even temporarily. Know how much of the cash you are holding is restricted either as to purpose (what it can be spent on) or time (when it can be spent) and subtract that amount from total cash to determine cash available for general operations.

5. Look at cash holistically.

Some boards like to designate cash for certain purposes, such as a reserve fund or to be used for certain programs. This practice can be beneficial, but it does not make the cash restricted. Board-designated cash is still unrestricted cash. Your board can un-designate cash if need be to fund new priorities.

6. If you are growing, budget for a profit.

The aim is to increase cash available for operations. Growing organizations need an increasing amount of cash, called working capital, to operate. Growth means more demands on cash to pay for expenses such as new equipment and employees, or to finance the purchase of supplies.

7. Maintain cash reserves.

The need for cash reserves differs by organization. Keep a “rainy day” fund for unexpected emergencies or business interruptions, such as an economic downturn or the loss of a key funding source. A cash reserve can also be used to cover planned future cash outlays, such as the cost to replace an aging roof or upgrade technology. A cash reserve can even be accumulated to pre-fund a new staff position so the position is secure for a year or more while permanent funding is developed.

8. Understand the organization’s true costs of operating

Consider the costs of operating programs as well as support services (overhead). New programs and activities, whether grant funded or not, can cost more than anticipated due to administrative costs. Such “overhead” is essential to running the program, but is often overlooked when requesting funding from grantors or other donors. You may find yourself scrambling for cash if you don’t plan carefully how you are going to fund essential support services (See our posts on nonprofit overhead.)

9. Keep an eye on your organization’s cash availability.

Consider cash on hand as well as near term cash inflows and outflows. Besides future income, cash inflows can also come from accounts receivable, pledges receivable or repayments of loans. Besides future expenses, cash outflows may be payments to vendors, payments on credit cards or loans, or purchases of fixed assets.

10. Cultivate a strong partnership between board and staff to create a realistic budget.

Staff are often in the best position to offer useful input in creating a budget and they are the ones who must live with the budget. You want their buy in!

Many of these pointers deserve a separate post (or two or three) which we will endeavor to cover in the future. Which of these aspects of managing cash resonate with you the most? Are you trying to improve the way you manage cash in your organization? If so, what are you doing? We welcome your comments.

 

 

 

 

2 Comments

  1. Roger DiBrito on February 6, 2018 at 7:24 pm

    Thank you for your time and effort. All the way from Montana!

    • Carol Wilson on February 9, 2018 at 7:02 pm

      Wow, I’m honored that you are reading our blog! As a fan of all you do to make the world better for kids and grown ups, I hope you find something useful here!

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