Traditional bank accounts are often not the best financial option for nonprofits. This is because they typically offer low rates and liquidity as well as strict limits on the amount of funds the FDIC will cover in a single account. Is it important to get better rates or will you be happy with a different payment schedule that better aligns with when you have money coming in? In many cases, even the latter can make a tremendous difference to an organization’s cash flow. By taking a proactive approach to money management, organizations put themselves in a stronger position to deliver on key objectives even when funding concerns arise. This serves as a form of independent validation, ensuring accuracy, transparency, and adherence to best practices.

Maintain a reserve

• Staff training on financial policies strengthens internal controls and promotes transparency.
• Cash management is a critical aspect of financial stewardship for nonprofit organizations.
• But, particularly given the fact of nonprofit life that our “customers” and “payers” are often different entities, there’s only so much we can do to line up that timing to smooth out cash flow.
• Creating a detailed annual budget forecasts income and expenses, allowing for better financial planning.
• Regular reconciliations between bank statements and internal records can identify discrepancies early and prevent potential financial issues.
• Without a thorough understanding of how money flows into and out of your organization, you won’t be able to implement any other cash management strategy.

This way, you’ll have a solid foundation to carry you through any changes that are out of your control. Most nonprofits have a variety of funds in reserve that they may or may not think of as “cash” but still make up their pool of liquid assets. The first step toward improving your nonprofit’s day-to-day finances is to get a handle on your current situation. Then, look at how your financial situation is likely to change in the coming months.

Cash Flow Management Tips for Nonprofit Organizations

However, this is a tedious process that makes bookkeeping difficult and often limits your ability to access funds. US treasury bills are highly liquid, government-secured investments that typically offer high returns if you hold them until maturity. This makes treasury bills an appealing low-risk option for many nonprofit cash management strategies. Additionally, you can work with a nonprofit investment advisor to purchase treasury bills as part of a rolling portfolio to continuously repurchase them after each yield. Ideally, you want all of these assets to be highly liquid so you can access them quickly when you need them.

Board-Designated Reserves vs. Endowments

Monitoring cash flow trends can help nonprofits ensure that they always have sufficient cash on hand to cover daily running costs. It also enables nonprofits to plan fundraising events to ensure they can cover current and future expenses. Since this report will look slightly different for every organization, reaching out to an accountant is also the best way to ensure your nonprofit has accurate, comprehensive cash flow statements to reference.

How Donor-Advised Funds Can Support Your Nonprofit

Proactive budgeting and forecasting practices are essential for nonprofit organizations to anticipate cash inflows and outflows accurately. By developing detailed budgets aligned with organizational goals and regularly monitoring financial performance, nonprofits can identify potential cash flow gaps and adjust their strategies accordingly. Deciding where to keep your nonprofit’s various nonprofit cash flow statement cash reserves is a major part of cash management. Where you store your funds determines important factors like your interest rates, FDIC insurance coverage, and fund liquidity (how quickly you can access and withdraw your funds). This involves a variety of activities, from storing operational reserves to insuring your funds safely to reporting on your nonprofit’s assets and liabilities.

This means that if a bank fails, more of your nonprofit’s funding is protected by the US government. Plus, you’ll streamline bookkeeping since you can manage significantly more FDIC-insured funds from a single account. Managing your financial policies and procedures https://www.bookstime.com/ is easy enough for your board when you use a board management system by BoardEffect. Your board portal offers a secure platform for your board or financial services committee to do the preliminary work of fleshing out your policies and procedures.

For this reason, it is essential that you make the most of your restricted funds by ensuring you use the cash in restricted categories to pay for their category of expenses first. Another question you should ask yourself when evaluating your cash flow statement is whether any of the inflowing funds are restricted. When allocating money to meet these different needs, you’ll want to avoid the pitfall of double-counting your cash holdings. A single pool shouldn’t be earmarked to pay operating expenses and serve as a rainy day fund. It’s important to state your objectives for each pool and the risks you are willing to assume.

• Propel Nonprofits is an intermediary organization and federally certified community development financial institution (CDFI).
• Where you store your funds determines important factors like your interest rates, FDIC insurance coverage, and fund liquidity (how quickly you can access and withdraw your funds).
• Please be aware that this might heavily reduce the functionality and appearance of our site.
• Cash management for a nonprofit organization encompasses various activities and strategies to manage cash flow.
• Organizations can learn and adapt strategies that have been successful elsewhere.
• Don’t rule out paying for something on the basis of potentially being able to do it for free.

The purpose of financial policies is to clarify the roles, responsibilities, and authority that are necessary for making responsible financial decisions for your organization. Without the benefit of having financial policies, your nonprofit operates off assumptions by default. Assumptions aren’t accurate or productive, and they can be a source of great conflict for your board. When it comes to analyzing cash flow in a nonprofit, having a strong, automated back office is essential to recording the financial data that are necessary for the facilitation of timely and accurate financial reports. You can optimize your budget to maximize ROI in your nonprofit by evaluating the profit and loss of each of your programs.

Use Accounting Technology