Navigating Government and Nonprofit Financials

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Mohammad Sufyan
in Bookkeeping
June 13, 2023
6 min read

Consider the section titled “Cash Flows From Operating Expenses.” In this example, you can see that the cash received from contracts and contributions add up to $300,000. However, the cash paid out to employees is $275,000, meaning that money is cash flowing out of the organization. The next section of the SCF includes cash that comes into and out of the organization for investments, like stocks, bonds, money market accounts, and interest-earning CDs.

  1. The Net Change in Cash and the Ending Balance lines on a nonprofit’s cash flow statement can give you a good idea of the organization’s overall financial health.
  2. If there was an increase in accounts payable, there is more cash that your organization owes, but the cash has not yet left.
  3. Here’s an example from Code for Science & Society’s Statement of Financial Position from 2021.
  4. Board members and other leaders can use this statement for better insight into how much is available to pay expenses.

But organizations whose revenue model is primarily driven by voluntary contributions often face another reality of managing cash, which is that cash inflow can be very concentrated at a particular point (or points) within the year. For example, an organization that generates a significant portion of its income from an annual gala-type fundraiser may have an event in spring whose receipts may have to carry it much nonprofit cash flow statement of the way until the next spring. Another may see much of its cash come in from an annual campaign timed to take advantage of end-of-year holiday (and tax write-off) giving. Nonprofits with highly concentrated cash inflow can exist in something of a “feast or famine” mode—flush when the money is rolling in but concerned that it will have to carry all the way until next year, or at least the next campaign.

To find out if The Charity CFO is right for your organization, request a free consultation today. By now, you understand the logic behind the additions and subtractions from net income. When we subtract values from net income, it is the opposite of what we added in.

Calculate cash flows from investing activities

If you are interested in learning more about optimizing financial health at your nonprofit, contact JFW Accounting Services today to learn how we can help. The SCF allows investors, nonprofit leaders, Board Members, and other interested parties to quickly analyze the difference between how much money is coming into the entity versus how much is going out. As a nonprofit leader, you’re likely accustomed to being given advice that tells you to manage your money just like you would if you were leading a for-profit company. The problem with this advice, however, is that cash flow in a nonprofit is not the same as cash flow in a for-profit. Members receive unlimited access to our archived and upcoming digital content.

Budgeting for Nonprofits

The operating activities section reports the changes in cash other than those reported in the investing and financing sections. Normally, the sale of marketable securities is treated as an investing activity. The statement of functional expenses gives donors more details on how the organization spends funds. Gross receipts are the primary difference between nonprofits and for-profit companies filing a statement of activities. Financial statements also help nonprofits determine the future of their organization. It also allows leadership to find potential financial opportunities and ways to address financial concerns.

How to prepare a nonprofit statement of cash flows

Learning how to read financial statements and customize your organization’s financial reporting procedures can maximize efficiency and leave you with time and energy to focus on fulfilling the nonprofit’s mission and growing the organization. An agency transaction is a type of exchange transaction whereby the not-for-profit entity receives funds that it must pass onto a third party. The receipt of these funds are not reported on the statement of actives, but instead, are reported as a liability on the statement of financial position. When the funds are transferred to the third party, the payment is recorded as a reduction in the liability account. The receipt and disbursement of agency transactions are reported as an operating activity on the statement of cash flows and can be reported either at net or gross when using the indirect method of reporting cash flows. A nonprofit cash flow statement is a financial statement that shows the inflows and outflows of cash in a nonprofit organization over a specific period of time—usually a month, quarter, or year.

Donorbox is an affordable and simple-to-use online fundraising tool with powerful fundraising features such as Recurring Donations, Crowdfunding, Peer-to-Peer, Events, Memberships, and more. You can also manage donors, send them automated donation receipts, add offline donations, let donors login and manage their accounts themselves, and more on Donorbox. Sharing financial statements with donors is one of the best ways to ensure transparency and build trust. The ending balance should be a positive number, which indicates that the nonprofit has enough cash to cover its expenses. If the ending balance is negative, it may be a sign that the nonprofit is in financial trouble.

Governments use modified accrual accounting for their statements and include reconciliations explaining how they made the switch from cash-basis accounting (typically used throughout the year) to the modified accrual basis they report in. Each component of the nonprofit business model—the delivery model and the funding model—has implications for organizational cash flow that should be understood for effective financial planning. We’ll look at each one in turn before discussing some strategies for addressing the almost inevitable occasions when the cash flowing in doesn’t match the cash flowing out. As we mentioned earlier, many nonprofits use these financial statements in their annual reports to show transparency and build trust in their organization.

Keep your financial documentation organized so that you can easily look back at your nonprofit statements of cash flows over time to draw long-term conclusions. You can leverage the example at the end of this article as a template on which to base your own cash flow statement. You can optimize your budget to maximize ROI in your nonprofit by evaluating the profit and loss of each of your programs. Then rank the programs to evaluate them by different factors such as the number of donations they bring in, the number of people they serve, and how much they cost. Consider cutting the worst-performing programs in order to reallocate those costs to places where your funds can go further and have a greater impact. CAFRs often present financial information for individual funds (or at least significant funds) as well as governmentwide financial statements that show the position of the government as a whole.

As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development. Finally, financing revenue comes from the earnings and interest earned on your financial activities and savings. Financial statements also give donors a better understanding of how the organization is doing. But your nonprofit should have better management strategies to track and understand its own finances.

It measures cash inflows and cash outflows, and it helps with determining a company’s financial health and making sure there is enough cash available to pay off expenses. These experienced members will help your team leverage technology to pull your nonprofit cash flows statement and forecast for future statements. Then, our team will analyze this document as well as other resources to identify potential risks, opportunities, and scenarios that could occur. From there, we’ll provide recommendations regarding how to maintain healthy financial management practices at your organization. The statement of cash flows is often confused with the nonprofit statement of activities (the equivalent of the for-profit income statement).

Remember that the income statement is calculated with the accrual method in mind, and the cash flow statement only looks at cash inflows and outflows. In this article, we’ll explain more about each financial statement, why and when nonprofits need financial statements and share examples of how organizations have used them in their annual reports. Have you ever overdrafted from your bank account because you didn’t realize how much you had already spent? Or perhaps had a credit card declined when you reached the limit earlier than anticipated? These things happen when individuals don’t understand how much money is flowing in and out of their various accounts.

NPQ is the leading journal in the nonprofit sector written by social change experts. If there was an increase in accounts payable, there is more cash that your organization owes, but the cash has not yet left. Operating activities include anything that occurs during the normal course of business. These could include paying employee salaries and receiving donations or grants.

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