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.
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