Cash flow is the number one problem and concern that non-profits face with their finances. In this article we’ll hit on a core philosophical change that must occur in order to fix cash flow problems, and provide accounting help for non profit organizations.
Too many die-hard not-for-profit supporters instinctively believe that if their organization turns a “profit,” something is wrong. I stand by the fact that “profit,” or cash in excess of the expenses of running the organization, is an absolute necessity to running a non-profit organization successfully.
Profit. If we define the term as excess cash that will then be returned to the business owners or investors, then non-profit organizations do not, and by nature should not, turn a healthy profit. But what happens in the case that in the quest for not turning a profit, a 501c3 organization charges the bare minimum for a product or service, and then they are hit with some financial or natural disaster and have an unexpected cost pop up? What rainy day funds does the organization have to cover those?
Excess Cash. Instead, let’s define the term “profit” as excess cash after operating and overhead expenses to fulfill the mission of the non profit organization. In this case, every not for profit should generate a profit so that it can continue to fulfill its goals as an organization.
If becoming “self-sustaining” or “self-perpetuating” is not one of the organization’s long-term goals, then it should be. In order to be around to continue serving meals to the needy, clothe the naked, or tend to children’s needs, the organization must survive from month to month and year to year. To accomplish that, ways must be found and developed to generate enough cash to cover not only operating expenses but also overhead (salaries of management, etc).
There are lots of ways to accomplish this, but it all starts with creating a very clear and transparent pictures of current cash in-flows and out-flows, and breaking down correctly all revenues and expenses. Once that is complete, creating a forecast of cash flows, assets & liabilities, and revenues and expenses is critical. And from there you can move forward to making adjustments.
Consider working with a professional, like Preferred CFO’s own, Scott Boman, to assist with the accounting help your non profit organization needs.
– by Russ Walker
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