Cash Flow Of The Not-for-Profit Organization

Background:

I served as the Treasurer of a not-for-profit organization.  The books were kept in a June 30 fiscal year end.  Budgets are prepared annually in the third quarter.  The patterns of cash flow collection reflected large amounts in December as donors and members sought to make donations that lowered their tax obligations and also significant cash inflows between April and September as members sought to enroll their children in the school offered by the organization.

The Red Flag:

Membership and enrollment numbers (key performance indicators) showed recent decline.   

Investigation:

Rather than wait for the third fiscal quarter to work on the next year’s budget, I began to prepare cash flow projections for the remainder of the fiscal year in December.  With a modification in early January based on adjustment for actual December collections.  The cash flow projections indicated that cash balances would reach a low point in March - not below zero - but too close for comfort.

The results were shared with the President who took steps to reduce spending and postpone expenditures that were not critical.  The outcome was that the organization incurred a small amount of losses for the year and avoided significant losses.

Lesson learned:

Budgets should be prepared but they should not be considered inflexible predictions of what will happen.  Preparing a cash flow projection is a challenge but is an important tool in helping management be ready for what is around the corner.