2009 Nonprofit Finance Fund. Cash Flow Webinar. This webinar was made possible with funding from MetLife Foundation. Presented by

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1 Nonprofit Finance Fund Cash Flow Webinar Presented by Carolyn Hubbard Analyst Nonprofit Finance Fund Philip Rosenbloom Associate Nonprofit Finance Fund October 13, 2009 This webinar was made possible with funding from MetLife Foundation 0

2 Nonprofit Finance Fund: Where Money Meets Mission Dedicated to keeping nonprofits in balance and in business. Serving thousands of nonprofit and funder clients since 1980 $185 million in loans; over $1 billion in capital leveraged for nonprofits 500+ Nonprofit Business Analyses; 200+ nonprofit finance workshops Formed hundreds of strategic partnerships to advance nonprofit sector Nationwide network of experts in nonprofit finance Lending Financial advisory services and workshops Assistance in preparing for managed change Financial advocacy across the nonprofit sector [NFF is] arguably the most influential voice in the ongoing effort to reshape thinking and practice about nonprofit capitalization. The Nonprofit Times 1

3 Agenda Cash and the Balance Sheet Developing a Financial Toolkit Importance of Cash Flow Projections How to Create a Cash Flow Projection Model Basic and Advanced Models Best Practices and Common Missteps Case Study How to Use Cash Flow Projections Cash Management Recession Planning 2

4 Assess Risk: Know Your Balance Sheet First things first: Know where you stand Cash: How much is there? How much of it is unrestricted? Receivables: Are they slow to collect? Are any amounts at risk? Line of Credit: Are you using debt appropriately? Is the line of an appropriate size given your cash flow cycle? Fixed assets: How will you finance repairs and replacements? Reserves: Do the exist? Have their purposes been formalized? Are they of adequate size to cover cash needs? 3

5 Assess Risk: Know Your Balance Sheet Are you operating now from a position of strength or weakness? If your balance sheet has No cash or receivables A fully drawn line of credit Little or no reserves available to management Significant wear-and-tear of fixed assets There may not be funds immediately available to cover costs during challenging times Your organization s condition will inform the urgency and types of action your leadership should take 4

6 Developing a Financial Toolkit Good financial decision-making requires timely, accurate and transparent financial information First things first: What financial planning and management tools do you currently use and are they giving you the information you need? Year-to-date actuals vs. budget Balance sheet Monthly cash flow Revenue and expense by program Tools are only as good as the assumptions behind them Remember, tools are not a substitute for making difficult decisions 5

7 The Importance of Cash Flow Projections The ability to estimate how much cash will be available over the course of the year gives you a better understanding of your organization s financial health and ability to tolerate risk By developing a visual landscape of cash flowing in and out, there is less uncertainty about whether cash will be available to meet future operating and balance sheet needs when they arise. 6

8 Tips and Considerations for Cash Flow Projections Projecting cash is a real-money exercise, comparing the cash you expect to have with the bills you must pay each month Cash in is not always the same as revenue and cash out is not always the same as expense Keep in mind that some cash may be restricted Uncertainty is inherent in projections do your best, based on the past and what you know about the future You will be required to make some assumptions about the timing and size of certain future cash receipts and cash spent. Use footnotes to keep track of your assumptions As a month ends, track actual receipts and expenditures alongside those that you have projected 7

9 A Basic Format for Cash Flow Projections Month 1 Month 2 Beginning Cash Balance Cash Source 1 [income line item providing cash] Cash Source 2 Net Assets Released Total Cash In Cash Use 1 [expense line item requiring cash] Cash Use 2 Total Cash Out Net Cash [cash sources cash uses] Total Ending Cash Balance [beginning cash + net cash] 8

10 A Basic Example for Cash Flow Projections January February Beginning Cash Balance $120 $110 Ticket Sales $50 Foundation Support $20 Net Assets Released $5 Total Cash In $75 Payroll $40 Rent $45 Total Cash Out $85 Net Cash ($10) Total Ending Cash Balance $110 9

11 A More Complete Model for Cash Flow Projections January February Beginning Total Cash $120 $110 Beginning Unrest. Operating Cash $100 $80 Ticket Sales $40 Foundation Support $20 Net Assets Released from Restriction $10 Total Operating Cash In $70 Payroll $40 Rent $50 Total Operating Cash Out $90 Net Operating Cash ($20) Ending Unrest. Operating Cash Balance $80 Capital Grant $50 Capital Project Expense $40 Net Non-Operating Cash $10 Total Net Cash ($10) Total Cash Balance $110 10

12 Best Practices: Conservative Within Reason Be disciplined and conservative, but not excessively so an unrealistic cash flow projection is useless. What does this mean? Look at historical trends in cash flow and see whether projections depart significantly from those trends Evaluate stability of existing funder and donor relationships If revenue is expected from government agencies, consider how economic conditions could impact the receipt of those funds? Don t use revenue plugs, such as money to be raised in order to make cash flow look more positive than it is Consider when temporarily restricted funds will be released for use 11

13 Best Practices: Conservative Within Reason Cash flow projections should be an ongoing process. Revise projections regularly (e.g., monthly) to compare projections to actuals and to review variances Updates to cash flow projections should impact other financial reports (e.g., budgets) 12

14 Common Missteps in Cash Flow Projections Not including a beginning cash balance at the top of the first month s column Not carrying month s ending cash balance through as the beginning cash balance of the subsequent month Insufficient detail for cash in and cash out line items Not noting cash in from receivables and cash out to payables incurred in earlier periods Straight-lining income and expenses Not putting cash flow projections into an easily readable format. Comingling restricted cash for future programs or projects with current operating cash 13

15 Case Study FY2010 Budget Jul Aug Sep Oct Nov Dec Jan Feb Mar Available Cash 2,000 48,761 3,224 28,634 52, , ,932 97, ,970 Income & Support Ticket Sales 60,750 65,000 82,775 59,125 43,375 77,150 74,150 Subscriptions 21,175 25,000 35,450 37,550 30,250 15,000 Gala 2,175 10,500 23, ,000 40,000 Individual Contributions 35,000 12,575 21,350 60,000 50,000 60,000 30,000 1,500 35,000 Grants 100,000 75,000 15,000 25,000 45,000 15,000 50,000 25,000 Total Cash In 156, , , , , , , , ,150 Expenses Salaries 70,872 75,042 77,022 64,112 85,162 64,102 70,845 81,745 80,141 Programming 41,562 50,119 39,447 43,251 82,172 42,522 35,602 18,037 18,012 G&A 20,201 15,902 15,152 14,152 14,152 14,152 14,152 13,482 13,482 Rent and Utilities 18,112 18,112 18,112 18,112 18,112 18,112 18,112 18,112 18,112 Development 6,000 1,000 22,500 31,500 Marketing 2,667 1,112 12,457 9,167 12,322 10, Total Cash Out 159, , , , , , , , ,447 Net (3,239) (45,537) (54,590) 23, ,355 60,562 (28,286) 27,324 (12,297) Net Assets Released 25,000 20,000 Operating Cash Balance (1,239) 3,224 (51,366) 52, , , , , ,673 Line of Credit draw 50, ,000 Line of credit repayment 50,000 40,000 40,000 Ending cash 48,761 3,224 28,634 52, , ,932 97, , ,673 14

16 Common Uses for Cash Flow Projections Plan cash needs and monitor availability of cash by analyzing the timing and reliability of incoming and outgoing cash Look for trends in the end of the month cash balances Estimate how much cash to keep in reserve to access during months when cash is low Determine whether short-term debt (e.g., a line of credit) would be an appropriate funding source, and if so, how much credit would be necessary Determine what strategies management might employ to manage cash flow Drawing on reserves or line of credit Extending payables and accelerating receivables Distinguish between cash flow issues, which involve a temporary lack of cash due to timing of receipts and cash issues, which involve a loss of funding that produces a cash shortage with no predictable end date 15

17 Considerations for Cash Flow During the Recession Recessions impact nonprofits by constraining both cash and cash flow How might the reliability of your organization s cash inflows be affected in an economic downturn? Will payments to vendors have to be put off, and if so, by how long? How will changes in your operating performance affect the reserves you have available to manage cash flow? 16

18 Addressing Risk: Plan Your Response Identify and quantify your current situation: What are the greatest cash flow challenges? Which activities are core to your mission and how do these activities impact cash flow? What are the non-negotiable cash needs? Engage staff, board, and possibly lenders in determining organizational reactions Determine the triggers (early indicators) that lead to implementing Plan B For example, if grant X does not arrive by date Y, we will draw $Z from our line of credit 17

19 Thank you Thank you for your participation and to the generous support of MetLife Foundation. Evaluation Please stay tuned to this website for details on our second conference call, which will address your cash flow questions on November 4 th, 2009 at 2 PM Eastern. To learn more about NFF, visit us at For questions about this webinar and NFF services available to Dance/USA, Theatre Communications Group (TCG), and The League of American Orchestras, please contact: Emily Guthman, Associate Director, New York Program emily.guthman@nffusa.org 18