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

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

3. MEET U.S. 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

4. MEET U.S. 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

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

6. MEET U.S. 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

7. MEET U.S. 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

8. MEET U.S. 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

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

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

11. MEET U.S. 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

12. MEET U.S. 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

13. MEET U.S. 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

14. MEET U.S. Cash Flow Forecast Process 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

15. MEET U.S. Cash Flow Forecast Process (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?

16. MEET U.S. Cash Flow Forecast Process (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

17. MEET U.S. 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

18. MEET U.S. 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

19. MEET U.S. 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

20. MEET U.S. 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

21. MEET U.S. 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

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

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