Non-profits are any organizations where making a profit is a secondary outcome of operating, with cash surpluses put back into extending the delivery of products and services to their customers.

Cashflow management is therefore vital to a non-profit’s core function of being able to effectively deliver these social services to their communities. If you run out of cash, no matter how important or successful in helping your members or stakeholders, you’ll cease to exist.

Here is some important information on why cashflow management is important, when and how to manage your cash flow, and some strategies to help you get on top of your non-profit organization’s finances.

The Nature of Cash Flow

Smooth cash flow is one of the most challenging aspects of running an organization where funds can fluctuate between feast and famine cycles, where money can dry up from contracts, donations, or budget cycles.

Cashflow is made more difficult by the uneven nature of non-profit finances. When money flows in, it’s tempting to run more programs, increase salaries or buy new equipment. This could hurt your cashflow long-term, when donations trickle in more slowly, but bills still need to be paid.

When your cash flow is properly managed, your organization’s creditworthiness improves. This can be crucial if you seek loans or are looking to partner with other organizations.

Each step you take to manage your cashflow now will help your organization survive long-term.

Fulfilling Your Mission

As a non-profit, your goal is about more than making a profit for shareholders or owners, it’s about fulfilling a mission. Whether you’re providing services, supporting a cause, researching new initiatives, or funding a project, you need a healthy cash flow to carry out your activities.

• Cashflow management ensures financial stability and enables you to respond to unexpected expenses or emergencies without having to pull back in other areas.
• Solid financial management can also attract donors and other supporters. They want to know that their contributions are being used effectively and are used for purposes that support your mission.
• When you’re developing or starting programs, or during changes to your funding structure, it’s vital to be aware of what money you have coming in and how it’s being used.

If your non-profit is member-based, meaning members pay fees to join, they want to see that they get a benefit for that membership. Better benefits typically mean you can attract more members, which further enhances your financial health and ability to run services.

Improving Your Cash Flow

Managing cash flow involves building projections, planning how your cash will be used, and analyzing your results to see if you need to set aside cash in reserves for unexpected expenses, and any upcoming financial needs.

Important considerations when forecasting:

• When you set up your cashflow projection, be realistic on the timing of your income and expenses. The projection should accurately match money coming in and out of your organization, rather than simply averaging income and expenses across 12 months.
• Don’t use a best-case scenario for anticipated grants. Be conservative in your estimates for how much money grantors will give. It’s much better to get more than you anticipated than less.
• If any money must be allocated for specific purposes within a set timeframe, make sure to account for this in your projections.
• Be sure to note any major upcoming expenses so you can prepare.

Remember that cash flow in a non-profit is different than in a for-profit. You likely have restricted funds that are earmarked for certain purposes which can complicate your financial situation. You will probably also have to track and report on your spending carefully, to ensure compliance with any funding covenants.

Once you’ve set up your cashflow projections you can prioritize and plan your use of cash, anticipate issues, and set aside reserves.

Other steps you can take to better managed cashflow include:

• Ask suppliers to renegotiate deals, offer early payment discounts, or review more favorable terms. If you haven’t queried costs for some time, it’s never too late to ask and can be especially relevant for technology-based services such as internet hosting.
• Buy in bulk, which often comes with volume discount. Then consider where you can streamline expenses through larger but less frequent purchases.
• Investigate if there is an alternative for any large costs you pay for internally, such as outsourcing or the use of contractors on an as-needed basis.
• Use any group discounts from chambers or industry groups.
• Increase your revenue by raising membership dues, expanding fundraising efforts, allow donors to automatically give monthly.
• Encourage people in your community to volunteer or contribute.

You may also find ways to cut back expenses related to programs or projects, provided these don’t significantly affect the quality of the program or your ability to deliver.

If you have any questions or are looking for guidance for your non-profit, contact Diamond Credit Union’s Business Service’s team.