Welcome! Below Are a Few Housekeeping Items to Review ... · flow tool Share our expertise with one another and provide support. ... Liquidity Durability Adaptability Longer-term

0nonprofitfinancefund.org ©2018 Nonprofit Finance Fund®

If you can’t get the audio through your speakers or by VOIP, try dialing in using your phone.

We have a number of participants on the call, so your phones are muted to ensure the best audio quality for everyone.

To ask a question, you can type it into the question box (pictured to the right) at any time. Questions will be addressed at designated intervals.

This webinar is being recorded. The slides and full recording will be provided to attendees after the webinar. An email will follow with further instructions.

Welcome! Below Are a Few Housekeeping Items to Review Before We Get Started

nonprofitfinancefund.org ©2018 Nonprofit Finance Fund®

Presented by

Nicole CurtainSenior Associate, Advisory Services

NFF Webinar SeriesPart 2: Using Data for Day-to-Day Management & Communicating With Stakeholders

Cash Flow Planning


Nonprofit Finance Fund Where Money Meets Mission

NFF envisions a world where capital and expertise

come together to create a more just and vibrant

society. We unlock the potential of mission-

driven organizations through:

▪ Tailored investments

▪ Strategic advice

▪ Accessible insights


2018 National Webinar Series: Strategic Financial Management Tools

Financial Literacy

Financial Comm-

unication

Financial Planning & Reporting

Financial Management &

Decision-Making

Part 1: Basics of Nonprofit Finance

Part 2: Tools for Managing the Day-to-Day and Stakeholder Communication

Part 3: Tools for Strategic Decision Making

Webinar 1: The Big Picture

Webinar 2: Reading Financial Statements

Webinar 3: What Every Board Member Should Know About Nonprofit Finance

Webinar 4: Budgeting Basics

Webinar 5: Strategic Budgeting

Webinar 6: Cash Flow Planning

Webinar 7: Dashboard Development

Webinar 8: Telling your Financial Story

Webinar 9: Program Economics

Webinar 10: Untangling Multiple Views of Cost

Webinar 11: Scenario Planning

Webinar 12: Planning for Growth

Webinar 13: Building Long-Term Financial Health to Manage Risk and Leverage Opportunities

Webinar 14: Partnerships and Collaborations


Today’s Goals

Use financial data to share your story & advocate for your needs

Learn best practices around cash flow tools in order to manage finances in an uncertain world

Develop a plan for creating your own cash flow tool

Share our expertise with one another and provide support


Understanding Nonprofit Capitalization

Appropriate capitalization can support:

Liquidity

Durability

Adaptability

Longer-term

Near-term


Cash Flow Quiz

True or false…

1. Deficits can cause cash flow challenges.

2. If an organization has a cash flow challenge, it must be the result of a deficit.

3. An organization’s annual budget will tell me if they are going to face cash flow challenges during the year.

4. Cash flow challenges = bad management.

TRUE

FALSE

FALSE

FALSE


How Do Cash Flow Projections Differ from the Budget?

Budget ≠ Cash Flow Projection

The budget cannot identify cash flow challenges that may

occur during the year

A cash flow projection is a separate document that

forecasts the timing of cash in and cash out of the

organization

If your organization uses cash basis of accounting, the

budget will present total cash in and out for the entire

fiscal year – not monthly ebbs and flows

Source: http://clipartoons.com/wp-content/uploads/2016/01/musical-instruments-clip-art.jpg

http://clipartoons.com/wp-content/uploads/2016/01/musical-instruments-clip-art.jpg


Cash vs Accrual Accounting

Cash Accounting

Similar to balancing a checkbook

Measures cash coming in and cash going out

Common for small and / or relatively simple organizations

Accrual Accounting

More comprehensive

Measures revenue when earned and expenses when

incurred

Revenue & Expense ≠ Cash

▪ “Cash in” is not always the same as

revenue, and

▪ “Cash out” is not always the same as

expense


The Importance of Cash Flow Projections

A cash flow projection gives you:

A visual landscape of gaps and areas of risk

An estimate of cash availability

A picture of financial health (or lack of)

More certainty

Projecting cash flows gives a better understanding of financial health:

Liquidity

Balance sheet strength


Step #1: Use Current Budget and Examine Last Year’s Checkbook for Historical Flows

http://clipartstation.com/budget-clipart-2/


Jan-18 Feb-18

Begninning cash balance 120 140

Cash reciepts

Admission/ticket sales 40

Foundation grant 110

Net assets released from restriction -

Total cash receipts 150

Cash spent

Payroll 40

Rent 90

Total cash spent 130

Net cash in/(out) 20

Ending cash balance 140

Step #2: Project Cash Flow Using a Basic Example

Poll Question:

What is potentially missing from this cash

flow projection?

a) Restricted funds are not separated

b) Non-operating funds are not separated

c) Both a & b

In thousands


Jan-18 Feb-18


Beginning cash balance w/out restrictions 100 90

Cash receipts w/out restrictions


Foundation grant 70

Net assets released from restriction 10

Total cash receipts w/out restrictions 120

Cash spent

Payroll 40

Rent 90

Total cash spent 130

Net cash w/out restrictions in/(out) (10)

Ending cash balance w/out restrictions 90

Cash with restrictions

Cash received with restrictions 40

Cash released from restrictions 10

Net cash w/ restrictions in/(out) 30

Total net cash 20


Step #3: Separate Unrestricted & Restricted Cash

In thousands


Jan-18 Feb-18


Beginning operating cash balance w/out restrictions 100 80

Operating cash receipts w/out restrictions


Foundation grant 20

Net assets released from restriction 10

Total operating cash receipts w/out restrictions 70

Operating Cash spent

Payroll 40

Rent 50

Total operating cash spent 90

Net operating cash w/out restrictions in/(out) (20)

Ending operating cash balance w/out restrictions 80

Net cash w/ restrictions in/(out) 30

Non-operating

Capital grant 50

Capital project expenditure 40

Net non-operating cash in/(out) 10

Total net cash 20


Step #4: Separate Unrestricted, Operating Cash Balance

In thousands


Fiscal year end: Dec 31 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

Total

PROJ CF

PROJ PROJ PROJ PROJ PROJ PROJ PROJ PROJ PROJ PROJ PROJ PROJ FY 2018

Begninning cash balance 75 304 273 304 201 190 138 181 158 308 309 224 75

Beginning operating cash balance w/out restrictions 47 36 5 36 (67) (78) (10) 33 10 160 161 76 47

Operating cash reciepts

Total earned 15 - 50 - - - 10 - 10 - - - 85

Total foundations 20 - 25 - 30 15 85 15 130 10 45 10 385

Total government - - - - - - - - 50 30 - - 80

Total corporations - 15 - - - - - - - - - - 15

Special event(s) - 5 10 - 25 10 - - - - - - 50

Individuals 2 - - - - - - - - - - 8 10

Board - - - 2 - - 2 - 1 - - - 5

Net assets released from restrictions - - - - - 120 - - - - - - 120

Total operating cash receipts w/out restrictions 37 20 85 2 55 145 97 15 191 40 45 18 750

Operating cash spent

Total personnel 35 35 35 35 35 53 35 35 35 35 53 35 456

Total consultants/contractors - 5 - 60 - - 10 - - - 60 - 135

Total occupancy 6 1 1 1 2 1 1 2 1 1 1 1 21

Total support 7 9 18 9 29 23 8 2 4 2 17 3 132

Total operating cash spent 48 50 54 105 66 77 54 39 41 39 131 40 743

Net operating cash w/out restrictions in/(out) (11) (30) 31 (103) (11) 68 43 (24) 150 1 (86) (22) 7

Ending operating cash balance w/out restrictions 36 5 36 (67) (78) (10) 33 10 160 161 76 54 54


Cash received with restrictions 240 240

Cash released from restrictions 120 120

Net cash w/restrictions in/(out) 240 0 0 0 0 (120) 0 0 0 0 0 0 120

Ending cash balance 304 273 304 201 190 138 181 158 308 309 224 202 202

Step #5: Identify Anticipated Financing Needs


Common Uses for Cash Flow Projections

Monitor availability of cash and plan cash needs

Analyze the timing and reliability of incoming and outgoing cash

Look for trends; which months are more difficult? Why?

Determine cash flow management strategies

Draw on reserves or line of credit

Accelerate collection of receivables

Change the timing of particular events or annual appeals

Negotiate favorable payment plans with vendors

CASH Issues: loss of funding that produces a cash shortage or gap

CASH FLOW Issues: temporary lack of cash due to timing of receipts


Fiscal year end: Dec 31 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

Total

PROJ CF

PROJ PROJ PROJ PROJ PROJ PROJ PROJ PROJ PROJ PROJ PROJ PROJ FY 2018

Begninning cash balance 75 304 273 304 276 285 233 201 178 308 309 224 75

Beginning operating cash balance w/out restrictions 47 36 5 36 (67) (78) (10) 33 10 160 161 76 47

Beginning operating cash balance after financing activities w/out restrictions 47 36 5 36 8 17 85 53 30 160 161 76 47


Total earned 15 - 50 - - - 10 - 10 - - - 85

Total foundations 20 - 25 - 30 15 85 15 130 10 45 10 385

Total government - - - - - - - - 50 30 - - 80

Total corporations - 15 - - - - - - - - - - 15

Special event(s) - 5 10 - 25 10 - - - - - - 50

Individuals 2 - - - - - - - - - - 8 10

Board - - - 2 - - 2 - 1 - - - 5

Net assets released from restrictions - - - - - 120 - - - - - - 120

Total operating cash receipts w/out restrictions 37 20 85 2 55 145 97 15 191 40 45 18 750


Total personnel 35 35 35 35 35 53 35 35 35 35 53 35 456

Total consultants/contractors - 5 - 60 - - 10 - - - 60 - 135

Total occupancy 6 1 1 1 2 1 1 2 1 1 1 1 21

Total support 7 9 18 9 29 23 8 2 4 2 17 3 132

Total operating cash spent 48 50 54 105 66 77 54 39 41 39 131 40 743

Net operating cash w/out restrictions in/(out) (11) (30) 31 (103) (11) 68 43 (24) 150 1 (86) (22) 7

Ending operating cash balance w/out restrictions 36 5 36 (67) (78) (10) 33 10 160 161 76 54 54


Cash received with restrictions 240 240

Cash released from restrictions 120 120

Net cash w/restrictions in/(out) 240 0 0 0 0 (120) 0 0 0 0 0 0 120

Non-operating cash receipts

Capital grant -

Draw on line of credit (LOC) 75 20 95

Non-operating cash spent

Capital expenditures -

Repayment of LOC 75 20 95

Net non-operating cash in/(out) 0 0 0 75 20 0 (75) 0 (20) 0 0 0 0

Ending operating cash balance after financing activities w/out restrictions 36 5 36 8 17 85 53 30 160 161 76 54 54

Ending cash balance 304 273 304 276 285 233 201 178 308 309 224 202 202

Step #6: Incorporate Anticipated Financing Needs


Accessing Capital for Cash Flow Shortages

Line of Credit Bridge Loan

Can help address periodic or recurring CASH FLOW issues

Provide cash for timing gaps between disbursement and receipt of cash

Monthly interest paid on outstanding balances

Non-use fee paid if the line of credit is not being used

Bridge timing gap from a specific source.

Cover expenses until the particular source of funds is received

Principal repayment is required upon receipt of funds

Monthly interest payments are required, generally from the organization’s operating cash flow


Accessing Capital for Cash Flow Shortages Continued

When choosing to access debt, conversations with your banker must be ongoing, deep, and fully transparent

Short- and long-term plans for the organization

Leadership that has the ability to lead through changing economic and funding environment

Evidence of reporting and processes in place to measure progress against budget and ability to course correct

Funding commitments / contracts for next 12 months

Multiple scenarios for potential reductions or loss in funding

Track record of support from community and funders

Engaged board of directors


Step #7: Update Projections with Actual Results

Fiscal year end: Dec 31 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18

ACTUAL ACTUAL ACTUAL PROJ PROJ PROJ

Begninning cash balance 75 297 283 363 270 259

Beginning operating cash balance w/out restrictions 47 29 15 95 2 (9)


Total earned 10 - 50 - - -

Total foundations 15 - 60 - 30 15

Total government - 10 - - - -

Total corporations - 10 - - - -

Special event(s) - 3 10 - 25 10

Individuals 2 - - - - -

Board - - - 2 - -

Net assets released from restrictions - - - - - 120

Total contributed w/out restrictions 17 28 70 2 55 145

Total operating cash receipts w/out restrictions 27 28 120 2 55 145


Total personnel 35 30 30 25 35 53

Total consultants/contractors - 5 - 60 - -

Total occupancy 5 1 1 1 2 1

Total support 5 6 8 9 29 23

Total operating cash spent 45 42 39 95 66 77

Net operating cash w/out restrictions in/(out) (18) (14) 81 (93) (11) 68

Ending operating cash balance w/out restrictions 29 15 95 2 (9) 59


Cash received with restrictions 240

Cash released from restrictions 120

Net cash w/restrictions in/(out) 240 0 0 0 0 (120)

Ending cash balance 297 283 363 270 259 207


Common Missteps in Cash Flow Projections

Not including a beginning (and ending) cash balance

Straight-lining income and expenses

Not accounting for the accurate number of weeks in a particular month

Comingling restricted cash with unrestricted operating cash

Insufficient OR too much detail

Not noting cash in from receivables incurred in earlier periods


What are my greatest cash flow

challenges?

What activities are core to mission? How do these

activities impact cash flow?

What are my non-negotiable cash

needs?

How might cash inflows be affected

by the current economy?

Updated Tax Code?

Can payments to vendors be delayed?

If so, how long?

How will operating changes affect

reserves and the ability to manage

cash flow?

Strategic Questions Putting the Cash Flow Document to Use


• Engage staff, board and funders in data-driven strategic conversations

• Understand the implications of new funding and/or timing of events

Strategic Decisions

• Develop explicit contingency plans

• It’s difficult when forced to take drastic action without a thoughtful plan

Worst Case Plan

• Determine the triggers that lead to Plan B or Plan C

• For example: if X revenue does not arrive by Y, we will cut or delay Z expenses

Identify Triggers

Plan Your Response


Main Takeaway:Own Your Numbers

Leadership needs to know the financial position of its organization to act effectively

Good financial decision-making requires timely, accurate and transparent financial information

Tools are only as good as the assumptions behind them

Cash flow projections are a tool to plan cash needs and monitor availability of cash

Considerations and best practices for building cash flow statements include:

Be conservative but not excessively

Update your cash flow projections regularly

▪ Revise forecast regularly

▪ Compare projections to actual results; review variances

▪ Changes to cash flow projections may impact other financial reports


2018 National Webinar Series: Strategic Financial Management Tools

Financial Literacy

Financial Comm-

unication

Financial Planning & Reporting

Financial Management &

Decision-Making

Part 1: Basics of Nonprofit Finance

Part 2: Tools for Managing the Day-to-Day and Stakeholder Communication

Part 3: Tools for Strategic Decision Making

1: The Big Picture

2: Reading Financial Statements

3: What Every Board Member Should Know About Nonprofit Finance

4: Budgeting Basics

5: Strategic Budgeting

6: Cash Flow Planning

7: Dashboard Development

8: Telling your Financial Story

9: Program Economics

10: Untangling Multiple Views of Cost

11: Scenario Planning

12: Planning for Growth

13: Building Long-Term Financial Health to Manage Risk and Leverage Opportunities

14: Partnerships and Collaborations


NFF Would Like to Thank the Following Organizations for Their Partnership


Learn More nonprofitfinancefund.org

Twitter twitter.com/nff_news

Facebook facebook.com/nonprofitfinancefund

Our Blog philanthropy.com/blogs/money-and-mission

Sign Up nonprofitfinancefund.org/sign-up

RSS nonprofitfinancefund.org/news/feed

Get in Touch!

[email protected]

nonprofitfinancefund.org

Thank You!To Stay Connected…

26

Documents

Welcome! Below Are a Few Housekeeping Items to Review ... · flow tool Share our expertise with one another and provide support. ... Liquidity Durability Adaptability Longer-term