Proper cash management is vital for a nonprofit organization to ensure the organization is budgeting effectively and complying with that budget. Furthermore, donors expect nonprofit organizations to use donations effectively. Organizations can ensure proper stewardship by remembering the following best practices:

• Create and maintain an annual budget along with monthly or weekly cash flow plans.
  • Plan for the seasonal fluctuations in the organization’s support and expenses.
  • Include major categories of support and expenses (e.g., payroll, debt payments and other monthly expenses). Know when large donations and expenses are expected to be received and incurred.
  • Carefully plan capital expenditures and related funding sources.
  • Reconcile the annual budget to cash flow plans to ensure the budget does not overlook small expenses that may have a large, unforeseen impact over time.
  • Build contingency amounts into the budget for unplanned circumstances that may require funding.
  • Have a priority schedule for which bills should be paid first.
• Maintain good internal controls. Ensure there is proper segregation of duties where needed to prevent errors or fraud.
• Close unnecessary cash accounts. More accounts lead to more items to continuously monitor as well as more areas for potential errors.
• Understand the true operating costs. This includes the actual program service costs and support services. Organizations typically forget the administrative costs when thinking about the cost of certain programs.
• Maintain cash reserves for unforeseen emergencies. A good rule of thumb for a cash reserve is 3-6 months of operating costs, if possible.
• Reduce areas of inefficiencies to save costs. Review costs with staff and the Board of Directors to identify areas where costs can be saved.
• Plan special events to be self-funding whenever possible. This will allow the organization to expand the use of funds.
• Avoid using debt unless necessary. If debt is deemed necessary, ensure the organization can afford the related interest costs and related principal when due for payment.
• If necessary, seek outside assistance to develop and review these cash planning practices.

Please contact the Not-for-Profit Niche team at Gilliam Bell Moser LLP for further guidance.

Joy Klenke, CPA