Lessons Learned from Nonprofit Cash Management in Bend
Many professionals reach a point in their career where they start to seek a purpose outside of their work. For some, the search for meaning, connection, and purpose leads them to get involved in a nonprofit board.
Serving as a board chair for a nonprofit, has taught me that managing the finances of a nonprofit is a lot like steering a ship through unpredictable waters. It’s not just about keeping the ship afloat; it’s about making sure every resource is used to propel the mission forward. The responsibility is immense, but so is the reward when you see the impact of your work.
For new nonprofits, having a compelling vision and mission is just the beginning. Structuring your organization effectively is crucial for long-term success. Here are some lessons I’ve learned after serving as a board chair from 2021-2023 for Friends of the Children Central Oregon, a professional mentorship non-profit designed to break the cycle of generational poverty.
Effective Cash Management for Nonprofits
Maintain Adequate Cash Reserves
Think of cash reserves as your safety net. Aim to have 3-6 months of operating cash on hand, net of any debt. This means if you look at your annual budget, you should be able to cover 3-6 months of expenses without raising additional funds. If you don’t have at least 3 months of debt-free cash, that should be your first target. Once you achieve 3 months, work towards 6 months.
Monitor Cash Flow Regularly
Regularly review your cash flow to ensure you have enough liquidity to meet your obligations. This involves tracking all incoming and outgoing cash to identify trends and potential issues. It also means adopting a cash management approach combining the preservation of near-term liquidity (cash deposits and cash-equivalent securities such as money market mutual funds) with higher-yielding fixed-rate “near-term” securities such as Certificates of Deposits and Treasury Bills. By keeping a close eye on your cash flow, you can make informed decisions, keep your cash working as hard as possible, and avoid financial shortfalls.
Diversify Revenue Streams
Relying on a single source of income can be risky. Diversify your revenue streams by seeking multiple funding sources such as grants, donations, and fundraising events. This not only provides financial stability but also reduces the impact of losing any one source of funding.
Create a Cash Flow Projection
Develop a cash flow forecast to project your income and expenses over a specific period. This helps you anticipate periods of surplus or deficit and plan accordingly. Due to the seasonality of expenses and revenues for some non-profits, and the reality that those flows may not be in synch, there can be periods of being flush with cash followed by periods with high expenses and precious little revenue. A cash flow projection can, therefore, be a valuable tool for managing your finances proactively and ensuring you can meet your financial commitments.
Implement Strong Internal Controls
Establish strong internal controls to safeguard your cash. This includes separating financial duties, reconciling bank statements monthly, and adopting cash handling procedures. For example, cash donations should be counted by two people who both sign off on the receipt. These controls help prevent errors and ensure accountability.
Build an Emergency Fund
In addition to maintaining cash reserves, consider building an emergency fund, such as a Board Designated Operating Reserve Fund. This resource can be used to cover unexpected expenses or financial shortfalls, providing an extra layer of security for your organization. And, if the process an Executive Director must follow is thoughtfully crafted, the use of reserves can trigger additional Board oversight and assistance during lean fiscal periods.
Do Your Homework
There are a variety of financial instruments used in cash management, from bank deposits to Certificates of Deposit to Treasury Bills. Many some banks offer their non-profit depositors excess FDIC coverage beyond the $250,000 limit via pooled deposit programs, those yields are often very low. Shop around, and you will be pleasantly surprised at how much more yield you can pick up. Friends of the Children Central Oregon achieved fully FDIC-protected yields of 5% and higher on its cash over the past year at levels well in excess of $250,000.
Put your Nonprofit First
In small towns like Bend and Redmond, it is hard not to be on a first name basis with many local bankers. Banks can be tremendous partners to non-profits in a variety of ways. But don’t let personal friendships get in the way of helping your non-profit to get the best cash management solutions possible. As a potential donor, I have evaluated the financial statements of some local non-profits and, unfortunately, I can’t help but conclude that someone at the non-profit (presumably a Board member) is choosing to prioritize the banker relationship over the economics of the non-profit. Needless to say, I choose not to support non-profits which are not emphasizing good governance.
Regular Financial Reporting
Provide regular financial reports to your board and stakeholders. These reports should include detailed information on your cash flow, income, and expenses. Transparency in financial reporting builds trust and allows for better decision-making.
By focusing on these cash management practices, nonprofits can build a strong financial foundation and ensure long-term sustainability. Remember, effective cash management is not just about keeping the lights on; it’s about using your resources wisely to further your mission and make a lasting impact.
Stu Malakoff, CFP®, CDFA®, CPFA, CRPC® I President, Bend Wealth Advisors
CERTIFIED FINANCIAL PLANNER™
523 NW Colorado Ave. Ste. 100
Bend, OR 97703
bendwealth.com
Direct 541.306.4325 I Office 541.306.4324 I stu@bendwealth.com
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Bend Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services.
The information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Bend Wealth Advisors and not necessarily those of Raymond James
