Improving Cash Management Helps Avoid Budget Deficits
Not-For-Profit Advisor , 2005 Fall
Many nonprofit organizations find themselves confronting budget deficits because of declining dues, donations, grants, and sponsorship funds. Budget deficits have become increasingly common in our spotty economy. Improving your cash management may help you get a better handle on things.
Expedite Cash Receipts
The sooner your organization can accumulate cash, the better off your cash flow and financial position will be. You can take some proactive measures to expedite cash receipts.
First, move your fund-raising calendar ahead. By sending an appeal in July rather than November, for example, a nonprofit may receive significant cash in late summer.
Second, mail or e-mail reminders in November to those who haven’t yet given. By doing this, you’re more likely to see contributions in December as well.
Finally, try collecting installment donations earlier. Instead of waiting for each payment of a four-quarter gift, contact those donors who are clearly predisposed to giving. Asking for the remaining donation in advance may well speed up the process.
Alter Your Collections Procedures
Another way to increase cash flow is to change collections practices. Send out bills weekly or on completion of a project, rather than at the end of the month. After sending 30-, 45- and 60-day notices, send notices every week.
If you have a grantor giving large, longer-term grants, ask him or her to wire money as time goes along. You can process payments electronically in 72 hours, as opposed to the five months it can take if funds aren’t sought until the end of the period.
Better Manage Disbursements
Managing cash outflow goes hand in hand with accelerating incoming cash flow. If you’re facing severe deficits, look first to your invoices in an attempt to decelerate your bill payment. You might need to communicate any difficulties to your vendors to negotiate extended payment plans.
Prioritizing your disbursements should be your Number 1 concern here. Although employee compensation can account for as much as 60% to 70% of some nonprofits’ budgets, bear in mind that most such compensation can’t be delayed legally. So be careful, because the IRS has strict rules about when deposits must be made to employee contributory benefit plans.
Don’t indiscriminately eliminate departments and functions. Instead, determine where the major expenditures are being incurred and consider alternatives that allow the organization to be effective but more cost-efficient.
If your staff is swamped, you may want to consider outsourcing functions related to payroll, accounting, event planning, and publications. On the other hand, you can bring previously outsourced tasks back inhouse if you have qualified employees who have the time to perform them.
Create a Positive-Cash Position
Budget deficits can be a huge problem. But these strategies may be just what you need to put your organization in a positive-cash position.