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This Month's topic: Better Cash Planning
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My New Book on Generation Change Is Available!
 My newest title, Generations: The Challenge of a Lifetime for Your Nonprofit
is available for review and purchase at the Fieldstone Alliance
website. I'm really excited about the reaction to this book, and I know
that the issues covered in it are affecting your nonprofit and will
continue to in the coming years. Check it out.
Here's what people are saying about the book:
“Helpful ideas for immediate action! Great insight into the
different generations in a practical way that lends itself to clear
thinking about how to most effectively engage people. Easy to
understand and engaging—a pleasure to read.”
“An invaluable guide—it will be a frequently consulted resource.
Brinckerhoff’s ‘Six Big Actions’ provide an excellent operational
framework to plan for generational change.”
—Joan M. Twiss, M.A., Executive Director, Center for Civic Partnerships, Sacramento, CA
Take a moment and check out the book--I think you'll see that it applies to your organization.
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| This Month's Topic: Better Cash Planning |
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Sites of the Month
Each month, this area provides with a number of my favorite and most helpful sites regarding the topic of the month.
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Management
Tip of the Month
Each issue, I start with a discussion
of my management perspective on the month's topic, and give you a few hands-on
ideas to consider.
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Recommended Publications
Here, I provide you with my
recommendations on the materials available that can help you
become more mission-capable in the area of Better Cash Planning
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Technology
I provide you with some good ideas for
uses of tech to better your organization in the area of Better Cash Planning
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Marketing
Tip
So much to say, so little space to say
it.....
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Next
Issue
In August, we'll look at an excellent issue suggested by a reader: What if you're a really small nonprofit?
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Past Issues:
You can see the topics of past Mission-Based Management Newsletters, and then view those that are of interest to you, by scrolling to the bottom of the newsletter, or by clicking here. |
Websites of the
Month
Here are my recommendations for websites of interest
on this month's topic: Better Cash Planning
Back to
Top
Management Tip of the Month
Better Cash Planning
Many nonprofit board and staff describe themselves as "non-financial"
managers. In other words, they come to the issue of managing their
organization's finances second, after coming first to the mission. For staff,
they may be trained as social workers, teachers, nurses, or
environmental engineers. They worked for their organization and a
mission they loved, and then got promoted and were forced to deal with
budgets. First they learned about income and expense sheets, the core
of a budget. Then, as they moved up the food chain, they had to deal
with balance sheets, and the mysteries of accrual accounting. They
learned how to read their auditor's reports and understand financial
ratios. All well and good.
But in a surprising number of cases, no one ever emphasized the
importance of cash. And cash, (people who have heard me speak know
what's coming:) cash = oxygen. Without it your organization dies, and
very, very quickly. While income and expense statements are important,
and balance sheets offer crucial information, without cash, all else is
for naught.
The key here is the relationship between cash and an accrual budget. I
see this as a huge problem in so many nonprofits. If the board says:
"We should strive to break even, and not post a profit" (far too
common), but the organization grows in size and budget, it will always be short on cash. Forever. This is an irrevocable rule of your balance sheet.
Let's look at an example:
Nonprofit X had a break-even budget in FY 2006 of $500,000. $500,000 in,
$500,000 out, on an accrual basis, as required by their key funder (the
state) and their board. In FY 2007, due to increases in the state's concern
about Nonprofit X's mission, the nonprofit will garner a 10%, or
$50,000 increase in funding. Now, to break even on an accrual basis,
the Nonprofit will also need to spend $50,000 more during the fiscal year. $45,000 of that
will be salaries, thus not funds that can be paid net 30 days.
The state will pay Nonprofit's bill monthly, 60 days after getting
billed. Nonprofit X, of course, bills the state after the first 30
days. Thus, 90 days (30 plus 60) go by before the Nonprofit gets paid.
In the interim, Nonprofit X has spent 90 days worth of cash, or roughly
$12,500. Thus, at 90 days, the books are balanced on an accrual basis, but the organization is $12,500 short on cash.
Will this condition rectify itself? Yes, but only if, after FY 2007, the funding reverts to the 2006 levels, and then only after 90 days into FY 2008. If the state funding continues to grow, this $12,500 is "lost" for the long term.
There's a name for this $12,500. It's called "working capital" the
money you spend to provide a good or service before you get paid. Every
business invests working capital, either from its initial
capitalization (selling stock--which you can't do) or from reinvesting its profitsfor
growth. Here's the hint: if you don't make a profit in a nonprofit,
it is very, very difficult to grow, unless all your funders pay you in
advance of providing a service. Do you want to do more mission and help
more people? Then you need to make money. And, of course, understand
how the cash actually flows. In? Out? Soon? Later?
Understanding the implications of cash in and cash out is crucial to
good nonprofit stewardship. In the tech tip below, I'll show you how to
responsibly report and analyze your cash flow into the future.
If
you found this hint helpful, there are lots more management, marketing, and
technology ideas for you in the "Ideas" section at
www.missionbased.com. Check them
out--they're free.
And, remember to take a look at the
Mission-Based Management
Blog.
Back to
Top
Print Resources
My recommendations for texts and other readings on Better Cash Planning. You'll see that two of these books are by Murray Dropkin, one of the best writers in this area.
The Cash Flow Management Book For Nonprofits: A Step-by-Step Guide for Managers and Boards, by Murray Dropkin
Bookkeeping for Nonprofits: A Step-by-Step Guide to Nonprofit Accounting, by Murray Dropkin
Financial Empowerment: More Money for More Mission, by Peter Brinckerhoff
Nonprofit Stewardship, by Peter Brinckerhoff: In the chapter on Financial Stewardship, there is a a cash flow template.
Back to
Top
Technology Tip
How can Tech help you with cash planning?
I like simple tech for this task: spreadsheets. Below you see an
example of a report that every nonprofit should have: a six month cash
projection. Take a look and you'll see receipts and disbursements
(remember, this is CASH not ACCRUAL). Note that in Month 1, the
estimations are very precise. As time passes they get more rounded.
That's fine. The idea of this report is to project trends.
You'll also see "debt service" as a line item under Disbursements, and
none for "interest". Again, this is cash, and reflects actual cash out
the door.
If you have a delay in receivables, that should show up here. For example,
you'll see a 0 in the first month for receipts under "Program B". That
could mean that Program B revenues are slow to start with.
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Month 1 |
Month 2 |
Month 3 |
Month 4 |
Month 5 |
Month 6 |
| RECEIPTS |
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Program A |
15,432 |
21,600 |
14,600 |
10,400 |
9,700 |
0 |
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Program B |
0 |
12,000 |
13,000 |
8,000 |
19,500 |
21,000 |
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Program C |
3,434 |
4,100 |
3,100 |
4,350 |
4,400 |
4,500 |
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Donations |
1,278 |
0 |
0 |
14,400 |
2,200 |
0 |
| TOTAL RECEIPTS |
20,144 |
37,700 |
30,700 |
37,150 |
35,800 |
25,500 |
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| DISBURSEMENTS |
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Salaries |
22,165 |
22,165 |
22,165 |
22,165 |
22,165 |
22,165 |
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Rent |
1,968 |
1,968 |
1,968 |
1,968 |
1,968 |
1,968 |
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Insurance |
0 |
0 |
12,450 |
0 |
0 |
0 |
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Debt Service |
3,546 |
3,546 |
3,546 |
3,546 |
3,546 |
3,546 |
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Taxes |
0 |
1,245 |
0 |
0 |
0 |
0 |
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Utilities |
447 |
500 |
500 |
500 |
500 |
500 |
| TOTAL DISBURSEMENTS |
28,126 |
29,424 |
40,629 |
28,179 |
28,179 |
28,179 |
| NET CASH FLOW |
(7,982) |
8,276 |
(9,929) |
8,971 |
7,621 |
(2,679) |
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| STARTING CASH |
12,350 |
12,350 |
12,350 |
12,350 |
12,350 |
12,350 |
| NET CASHFLOW |
(7,982) |
8,276 |
(9,929) |
8,971 |
7,621 |
(2,679) |
| ENDING CASH |
4,368 |
20,626 |
2,421 |
21,321 |
19,971 |
9,671 |
At the bottom, you see that the organization has negative cash months
and positive ones, but nearly runs out of cash in Month 3. This is a
great thing to know early, and begin to protect against. The projection
is almost certainly not accurate to the dollar, but that's not
important: the trend is what you are looking for
Finally, you if you use a spreadsheet, you can easily turn the numbers
into a great, easily understood picture...also known as a graph.
Graphic representations of numbers are essential for some staff and
board, who are visual learners. Make sure you use the tech here to
present the numbers in both forms.
If you found this hint helpful, there are lots more
management, marketing, and technology ideas for you in the "Ideas" section at
www.missionbased.com. Check them
out--they're free.
Back to
Top
Training Schedule for Peter Brinckerhoff
This summer, I'm doing solely private training
and consulting, and not re-starting my public training until the fall.
Below you'll see the date, location, and topics of public training I'm
currently scheduled to do starting in September. For more information
on a particular speaking engagement, get in touch with the contact
person listed in the right hand column, or email me.
For more information on my availability throughout
the next 12-18 months, available topics, sample agendas, and fees go to
www.missionbased.com/training.htm
9/11/07
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Cincinnati |
Generation Change and Recruitment and Retention |
Easter Seals Regional Conference
Jackie Hooper
jhooper@essmichigan.org |
| 9/18/07 |
Minneapolis-St. Paul |
Generation Change |
Fieldstone Alliance/United Way |
| 9/26/07 |
Seattle |
Corporate Structure Options for Rehabilitation Employment |
NISH
Rick Van Hoose
Rvanhoose@nish.org |
| 10/03/07 |
Houston |
Generation Change and Nonprofits |
United Way of the Texas Gulf Coast
Beth Tobias
btobias@uwtgc.org |
| 10/0/07 |
Breckenridge, CO |
Nonprofit Stewardship |
Colorado Behavioral Council
Mary Jo Lagesse
mlagesse1234@msn.com |
| 10/9/07 |
Portland, OR |
Generation Change in Nonprofits |
TACS
Jennifer Ingham
jb@tacs.org |
| 10/13/07 |
San Francisco |
Generation Change in Nonprofits |
BoardSource Leadership Forum
Barb Knoff
Barb@mil3.net |
| 11/1-2/07 |
Vienna, VA |
Workforce Recruitment and Retention |
NISH
Therese Stein
Tstein@nish.org |
| 11/13/07 |
Columbus, OH |
Mission-Based Management and Financial Empowerment |
Ohio Council of Behavioral Health Care Providers
Hubert Wirtz
OCWirtz@aol.com |
Marketing Tip
In kindergarten, you were told to share. What happened?
I confess up front...this is not really about marketing your cash situation. But it IS about
marketing to a key market, your staff and board, through the use of your financial information. If you have financial
information (like the cash flow projection discussed in the tech tip
above): USE IT, by SHARING IT.
As regular readers know, I'm a zealot about sharing financial
information with staff and board (after appropriate training on how to
read financials, of course) but to keep financial information only in
the hands of a few violates a number of good stewardship principles.
First, you get more out of your staff if you use all their minds, not
just part of them. Second, you involve them, and give them ownership.
Third, they have great ideas. If they see the issue straight up, they
can react, adapt and make suggestions.
I do a number of book clubs for a large national client. This month's
calls included questions about sharing information (both strategic
plans and budgets) I was, as usual, appalled by how few of the managers
on the phone see their own budgets!
Not smart, not good stewardship.
Don't believe me? Check out these two books:
Open Book Management, by John Case
The Open Book Experience: Lessons from 100 Companies Who Successfully Transformed Themselves, by John Case
I think you'll be impressed.
And, if you found this hint helpful, there are lots more
management, marketing, and technology ideas for you in the "Ideas" section at
www.missionbased.com. Check them
out--they're free.
Back to
Top
Future Topics for
The Mission-Based Management Newsletter....
| August |
What if you are a (really) small nonprofit? |
| September |
Generation Change and Technology |
| October |
Crisis Management |
| November |
Generation Change and Marketing |
| December |
Signs of Organizational Trouble |
| January 2008 |
Reorganizing Your Board of Directors |
| February |
New Communications Tools |
| Send me
your topic suggestions at: peter@missionbased.com |
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You asked, so here they are:
Past Single-Topic Issues of the Mission-Based Management Newsletter...
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Copyright 2007,
Corporate Alternatives, inc.
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