In Part I of this series, we talked about your surplus & deficit summaries, what information they provide you, and how to read them. We started with those because current and accurate surplus & deficit summaries can give you the most detailed information about how your organization has performed to date and which major program areas or departments are supporting themselves (or not). A well-crafted surplus & deficit summary is one in which each major program column reflects the expenses associated with that program – no more and no less. In our organization, we have sometime seen a program we thought was wonderful, show growing deficits because it took more direct staff to operate than the revenues would cover. Or maybe more real estate. It’s important to recognize when this happens so leadership can make informed decisions about whether to end a program or ‘subsidize’ it with revenues from – and at the expense of – other program areas.

In this blog, we will consider how cash is managed and why it is important. If your organization has a bottomless well of cash, you can skip this for now. But if you are like most nonprofits, running out of money is a nearly constant concern. The simple fact is, if at any point you run out of cash it means you cannot pay your staff, you will be late or default on your rent, and your creditors will take adverse actions. When that happens, all other worries fall by the wayside. Ongoing mindfulness and understanding of your financials may help you avoid this crisis, but you should also make it a practice of watching your cash on a weekly basis. A cashflow summary if a relatively simple thing:  it starts with how much cash you have on hand and then for several weeks out, projects what cash you expect to have coming in each week and what cash you expect to have going out. Cash coming in should be realistically and conservatively projected. If a funder tells you the “check is in the mail,” you might want to add a week or two before it clears your bank just in case. Your cash going out is first and foremost, when your payrolls hit, then your rents. Other vendor “cash out” forecasts ought to be in the weeks they are owed. And if you have a line of credit, you want to show at the bottom of each week on the cashflow forecast, how much of it you will likely need to keep your head above water.

If you don’t have a line of credit, endowment, or other ready source of spare cash, then what will be your plan when, three weeks from now, your cash out exceeds your cash in plus what’s in the bank? Negative cash is not a “thing.” There are two strategies for optimizing cash management that your team can and should employ on an ongoing basis. The first is aggressive management of your accounts receivable.  This is the money owed your agency by funders or any other billable source. In almost any case, particularly if you have publicly-funded cost-reimbursement contracts, you cannot get cash in if you haven’t invoiced for it. So, our motto is to “invoice early and often” and then track carefully when invoices are paid. The finance team should do whatever is needed to get paid quickly. Being first with your invoices is a good tactic, but so is personal follow up. So make it a practice. The second place you can control your cash picture is accounts payable. If a vendor has a net 15 or net 30 requirement for payment, ask them to change it to net 45 to give you more time. The best time to ask if, of course, before you sign any contract for services, but some vendors will allow the change to keep your business.   Bottom line, if you still have cash, you’re in business and if you don’t ….