Dealing with a decreased inflow of money and cash flow problems
The nature of the not-for-profit sector can be volatile and unpredictable - because of this, NPOs are often faced with cash flow constraints and limitations. Many non-profit leaders find that cash flow limitation causes challenges in their day-to-day operating activities and business functions. Cash flow issues even go beyond just finding donors - even when an NPO obtains funding, donors often dictate what their money can and cannot be spent on. With the immense focus on a non-profit's mission, money management is not given the proper attention that it requires, and cash flow statements may be easily overlooked.
The solution? Proper cash flow management.
When organizations take a deliberate and proactive approach when managing their cash flows, they strengthen their financial position and overall, improve their service to their mission.
So, what does it mean to be deliberate and proactive in cash flow management? Conducting regular analysis of income and expenses is a wonderful way to start. To conduct analysis and prepare accordingly it is important to ask questions about where our donations are coming from and when will we receive the cash - here are some examples of questions to consider:
- What kinds of events bring in the largest amount of donations?
- Who are our largest and most consistent donors?
- Are we receiving funds from any government or private sector funding?
- When do regular donations come in?
Although an NPO may be generating sufficient funds to cover the expenses and costs of the organization when looking at annual financial statements, it is important to consider the timing of cash flows. It is important to consider the timing of receiving cash inflows and outflows so organizations can make strategic and appropriate decisions that will benefit the organization’s structure and mission, subject to financial constraints.
With COVID-19, cash flow issues have been felt across the board. For example, although the Canadian Federal Government provides relief measures to non-profit organizations, this influx of cash does not equate to long-term success. Eventually, NPOs will have to find ways to attract and maintain donors in the “new” normal world post-pandemic (see our article on finding and retaining donors).
Looking for more tips and advice on cash flow management? Contact our team today!
Interested in learning more about how our services can assist your NPO? Reach out to us at npo.consulting@uwaterloo.ca.