Cash Management in a Nonprofit

Nonprofit organizations have several unique factors which impact management of cash. Planning for adequate cashflow must be done in order to keep vendors and employees paid on time, as with any company or organization. But additional factors which influence the planning process at a nonprofit include purposes beyond profit, seasonal fluctuations in cash balances, and the restrictions of designated gifts.

Purpose Driven

A nonprofit organization by definition is driven by accomplishing a purpose other than profit, which can lead to inadequate attention to the financial management of the organization. Rather than seeing administration as an integral part of an organization, administrative support is often treated as a necessary evil which is not to exceed 10% of the program expenses.

Key among the administrative requirements is processing donations or grants, properly receipting these, and then managing the flow of these funds into appropriate program expenses, in order to continue the organization’s mission. Cash is not to be collected for shareholders, but stewarded for maximum purpose and program impact.

Seasonal Flow

Though not entirely unique to nonprofit organizations, cash flow to charities is typically measured in annual cycles rather than weekly or monthly terms. From annual fundraising events like golf tournaments, to the traditional year end giving season, cash balances in a nonprofit can fluctuate widely throughout the year, making advance planning necessary if organizations want to keep staff and program levels consistent throughout the year.

With fundraising requiring up front investment, such as deposits paid in advance of mailings or events, running out of cash too soon can both limit current programs and put the organization’s future fundraising at risk. What looks like a surplus after a successful year end, may just be provision for necessary costs several months in the future.

Designated Gifts

Administrative support is required to track revenue and expenses of a nonprofit to a greater degree than is needed for most for-profit organizations. Not only are there federal and state returns, such as the 990 information return and state charitable solicitation returns, but voluntary oversight is often in place as well, such as compliance with ECFA guidelines or industry groups such as Citygate Network.

More specific than these is tracking individual donation designations. What may look like one cash account to an outsider may actually be multiple balances of funds with various permanent or temporary designations. Unlike companies which can change directions and redirect funds to the area of greatest need, funds with charitable designations must be used for the purpose given.

Planning

These factors make cash planning critical to success of the organization. More than covering expenses, cash must be stewarded for impact across seasonal fluctuations while fulfilling donor designations.

Let a man regard us in this manner, as servants of Christ and stewards of the mysteries of God. In this case, moreover, it is required of stewards that one be found trustworthy. – 1 Cor 4:1-2 NASB

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