Updated on January 29, 2021.
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Table of Contents
Q: Do you have any resources for nonprofits planning for economic recessions?
A: See below for articles, webinars and other resources.
Q: Do you have any resources for nonprofits, specifically, best practice advice on how to manage finances and forecasting, and any process recommendations for our board and me to consider when and how to make budgetary adjustments as the year goes on?
A: You most likely will have to reforecast your current budget.
- Reforecasting the budget periodically may be appropriate for some organizations, particularly those facing major unexpected changes during the year, and it’s an important exercise for the budget to remain a useful management tool. This process involves creating a separate, revised budget that uses year-to-date results as well as management's best estimate of the remaining months of the fiscal year. While creating an amended budget, formally reapproved by the board, is not commonly done, it may be warranted in times where the fiscal year is likely to end very differently than predicted in the original budget.
- Cash flow projections often are a useful tool in Scenario Planning. Cash flow projections can be engaged in evaluating the impact of various scenarios. For instance, what if the grant arrives six months later than expected? You can create a few "Plan Bs" that suggest either (i) drawing down on a line of credit, (ii) drawing down on reserves, or (ii) discussing delaying the payment of certain bills with creditors.
- Upswing or Downturn: How to Make Your Nonprofit Ready for Anything
- Top Three Measures of Financial Health
- What Nonprofits Should Do Right Now This short article discusses three things that nonprofits should do and comes with tools to download:
- An Exploration of Nonprofit Budgeting
- This blog series offers practical advice for nonprofits leaders on the ins and outs of budgeting, including tips to get started and advice to navigate periods of change or uncertainty. Try the following:
- Six tips for getting through a crisis
- Tips for Creating/Running a Crisis-Response Team - The Management Center
- NFF 2018 Webinar Series - Our series of practical, one-hour webinars.
- NFF’s 2016 webinar on Financial Health & Social Good: Steering Nonprofits through Uncharted Waters.
Cash Flow Planning
Q: What is a cash flow projection and how is it different from an operating budget?
A: A cash flow projection is a financial representation of anticipated cash received and cash paid out, often on a monthly basis, but in dire circumstances can be done on a weekly basis. While an operating budget shows whether revenue earned will be greater than expenses accrued, the cash flow projection shows whether there will be enough cash on hand to actually pay bills at various points over the fiscal year.
- By developing a "visual landscape" of cash flowing in and out, there will be more certainty about whether and when cash will be available, or unavailable to meet future operating and balance sheet obligations when they arise.
- Projecting cash is an important exercise. It compares the cash you expect to receive with the bills you must pay each month.
Q: What do I need to build a cash flow projection?
A: The following will be helpful to collect prior to filling in your cash flow projection:
- NFF Cash flow template
- Current budget
- Beginning cash balance: How much cash is on hand at the beginning of the month? This is the ending cash balance in the previous month
- The anticipated flows of cash, list all
- cash-providing sources: cash income, collected receivables, net assets released
- Expenses requiring cash or payables paid off. Do NOT included depreciation expense.
- You will be required to make some assumptions about the timing and size of certain future cash receipts and cash spent. Use notes to keep track of your assumptions.
Q: Why can’t I just use revenue and expenses that I find in my budget and divide by 12 months?
A: Projecting expenses is often easier than projecting revenue. Often expenses are predictable and occur consistently. Not necessarily so for revenue. For example,
- “Cash received” is not always the same as revenue. For example, a pledge from a donor in the current fiscal year that has not yet been paid in cash will not be included as "cash received" until it is received. In fact, under the current circumstances, the pledge may not be received until the following fiscal year. On the flip side, take a look at all pledges from the previous year. Have they all been paid? If not Will they be collected in the current year? If so, this will included as "cash received."
- Likewise, “cash spent” is not always the same as an expense. For the same reasons above, you may receive a bill or invoice to be paid, most likely in 30 days. The receipt of the bill is when you accrue the expense, but the projected payment of the bill will be included in “cash spent.” In addition, do not divide your annual budgeted expenses by 12 months. Do an analysis to determine the frequency and timing of each expense category.
- During a crisis situation, plan out when you most likely will pay the expenses. Speak with creditors to get them to relax payment terms.
Q: Can I do scenario planning when using cash flow projections?
A: Cash flow projections often are a useful tool in scenario planning. Cash flow projections can be engaged in evaluating the impact of various scenarios. For instance, what if the grant arrives six months later than expected? You can create a few "Plan Bs" that suggest either (i) drawing down on a line of credit, (ii) drawing down on reserves, or (ii) discussing delaying the payment of certain bills with creditors. More specifically, cash flow projections help plan your response in terms of determining:
- How much cash to keep in reserves to access during months when cash is low
- Whether short-term debt (e.g., a line of credit) would be an appropriate funding source, and if so, how much?
- How much and when to draw down on reserves or line of credit
- Which creditors you may need to talk to and when
Q: What if I have to close down a program, event, store during COVID19, and I lose those fees, sales, etc.? Will the cash flow projection tool tell me how much I can borrow?
A: Be careful to distinguish between “gap in cash” issues vs “cash flow timing” issues. The cash flow projection tool can help illustrate the difference between
- “Cash flow timing” issues, which involve a temporary lack of cash due to seasonal timing of receipts or delays in payments (from contracts or grants)
- debt, particularly a line of credit, could be particularly helpful to cover cash expenses while waiting for the receipt in cash of a grant or contract.
- “Gap in cash” issues, which involve a loss of funding that produces a cash shortage with no predictable way of alleviating. "Gap in cash” issues are usually associated with an operating deficit - in other words, expenses exceed revenue whether in cash or other forms.
- Debt is rarely appropriate to plug this kind of gap.
- Instead, look for an emergency grant.
Q: Do you have any process recommendations for our board and me to consider when and how to make budgetary adjustments as the year goes on?
A: You most likely will have to reforecast your current budget. Reforecasting the budget periodically may be appropriate for some organizations, particularly those facing major unexpected changes during the year, and it’s an important exercise for the budget to remain a useful management tool. This process involves creating a separate, revised budget that uses year-to-date results as well as management's best estimate of the remaining months of the fiscal year. While creating an amended budget, formally reapproved by the board, is not commonly done, it may be warranted in times where the fiscal year is likely to end very differently than predicted in the original budget.
Q: How do I talk to my donors during this time of crisis?
A: While we are not fundraising experts, we know there are some strategies and suggestions that can be helpful:
- First, ask how your donors are doing
- Second, tell them, in clear terms, how your organization is responding to current events
- Be prepared to suggest nonfinancial ways in which they can help (offering other ways to help can strengthen your ties with donors who aren’t able to give right now)
- Celebrate and support the work of those on the front lines
- Talk about your nonprofit’s plans for recovery and resilience
- Be open and honest about finances
- Are you losing money? Are there delays in grant or contract payments?
- Do you have reserves? Are you tapping into them?
- Do you have an endowment that can’t be touched? Explain that too.
- Ask supporters to
- Share time and talent
- Convert tickets to performances or galas, event sponsorships into a charitable gift
- Convert endowed assets into unrestricted cash reserves
- Antony Bugg-Levine, NFF
- Six Steps for Grantmakers to Take Now - The Chronicle of Philanthropy
- A New Normal for Foundation Giving: 3 Acts That Will Make a Difference - The Chronicle of Philanthropy
- Chronicle of Philanthropy
- National Committee for Responsive Philanthropy
- My Favorite Funder Responses so far to COVID-19 Crisis (as of 3/18/20)