Even financially sound organizations can occasionally struggle with cash flow. You can have a balanced budget and a healthy Statement of Financial Position, but that doesn’t guarantee that you’ll have enough cash on hand to cover an unexpected expense. For nonprofits, short-term cash flow may be further impacted by grant cycles or the timing of major fundraising events. If you have concerns about running short on liquid cash, try these solutions to help manage your organization’s cash flow.
Create a Cash Flow Projection
Prevention is the best cure! Cash flow projections can help your organization anticipate potential issues and work out a plan to address them. You can generate a cash flow forecast in QuickBooks Online or use a template to track your cash flow. No matter how you build your projection, pay close attention to the timing of grants, fundraising income, payroll, and major expenses.
Build a Better Budget
When your organization crafts your annual budget, make sure to drill down into monthly and quarterly timeframes as well as the annual overview. Some organizations have relatively consistent income and expenses year-round; but if your organization has more seasonal or intermittent income – such as from school or summer programs – it’s important to budget for the lean months too. This may mean temporarily reducing expenses or finding alternate sources of income to bridge the gap. Try talking to your vendors and service providers to negotiate a payment schedule that works best for your organization.
Don’t Be Shy About Receivables
Many nonprofits are uncomfortable sending reminders to their clients and donors regarding overdue balances. It can feel awkward to follow up on late checks, unpaid pledges, or forgotten invoices. But for the health of your organization, it’s critical to stay on top of your receivables. Be polite, yet firm! If your organization still struggles to receive funds in a timely manner, you may want to adjust your payment terms or encourage automatic payments instead.
Save for a Rainy Day
A cash reserve can help ensure operational continuity in times of crisis. While some nonprofits may question the value of a cash reserve, preferring to invest any excess funds for long-term growth, it’s important to plan for the unexpected. Building a cash reserve is easier said than done, but through careful planning and budgeting, it’s possible to accrue a healthy emergency fund for short-term cash shortages.