Understanding a Nonprofit Statement of Cash FlowsFeb 01, 2023
Understanding your nonprofit statement of cash flows is essential to running your organization smoothly and efficiently. It shows you exactly how money is moving in and out of your nonprofit.
With this knowledge, you will be able to make informed financial decisions and plan strategically for your nonprofit’s future and overall financial health.
Let’s take a look at how you will be able to use this document to your organization’s advantage.
What is a Nonprofit Statement of Cash Flows?
The statement of cash flows is one of the four financial statements for nonprofits and shows how money is moving in and out of your nonprofit.
Ideally, you should be checking this statement at least once per month. It is also a good idea to save your statements over time so that you will be able to draw conclusions from longer timeframes and more data.
Within the statement of cash flows, you will find the following sections:
- Operating activities: Cash flows generated from general operations.
- Investing activities: Cash flows from buying and selling long-term assets such as equipment, property, or facilities.
- Financing activities: Cash flows from debt payments, fundraising, or other cash-generating methods.
Each section of the statement will be broken down further for review.
For example, operating expenses may be broken down into cash from contributions, contracts, and cash paid to employees. At the end of the operating section, you will be provided with net cash information for operations after calculations have been done. This level of specificity will be provided for each section within the statement of cash flows.
Why is the Statement of Cash Flows Important?
The statement of cash flows is so important because it allows you to time cash inflows and outflows within your organization using the information it provides.
Utilizing this, you can ensure that you have ample cash on hand at all times. Furthermore, you will be able to gain greater insight into your nonprofit’s spending and fundraising habits as a whole.
With all of this information available to you, it becomes much easier to create a well-planned and accurate budget for your nonprofit. With a trained eye, you can spot both financial risks and opportunities for your organization all from within the statement of cash flows.
Tips for Nonprofit Cash Flow Management
Monitor Your Cash Flow Regularly
It is important to monitor your statement of cash flows frequently. Typically, this should be done once per month. Checking your statement regularly will allow you to spot discrepancies as they occur and make timely adjustments as needed before anything gets out of hand.
In other words, the more regularly you monitor your cash flows, the more you are able to make informed decisions on a day-to-day basis rather than relying on old or outdated data. It is better to have a proactive approach to analyzing your statement of cash flows rather than a reactive one.
Leverage Recurring Revenue Streams
Leveraging recurring revenue streams is key for nonprofits.
Recurring revenue streams, such as an automatic monthly donation service, provide you with predictable income that will give you a solid foundation to count on when planning your finances.
Finding ways to generate more recurring revenue should be on every nonprofit’s to-do list.
Focus on Programs That Maximize Your ROI
Using the information provided in the statement of cash flows, your nonprofit can categorize its programs as either strong or weak returns on investment.
Ideally, more money should be directed into the programs that are seeing a better return on investment for your nonprofit. If you see that there is too much money going into a weaker revenue stream for your organization, it may be time to end that program in favor of a program that will see a stronger return.
For the overall financial health of your nonprofit, you want to regularly check to make sure you are getting the most out of what you are spending.
Be Smart About Your Expenses
For any business, nonprofit or otherwise, being smart about your expenses is one of the best ways to manage cash flow. As you begin to delve deeper into how and when you are spending money, you will start to see opportunities to cut expenses and make changes that will positively impact your nonprofit’s cash flow. Everything should be done with optimization in mind.
Keep in Touch With Your Accountant
Cash flow is critical to any organization and having an accountant that understands this concept is vital to a nonprofit’s long-term financial success.
Your accountant should be able to help you connect the dots within your statement of cash flows and ensure your cash flow is moving in the right direction. If your organization is in need of an accountant to navigate your finances, consider Morris Verdonk Accounting.
With over twenty years of experience, we can piece together a strong plan to help your nonprofit organization understand and optimize its cash flow. Contact us today to get started!
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