Cash Flow and Your Cash Position

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Your organization’s primary financial objective is to ensure that financial resources are available when needed (timing), as needed (amount), and at reasonable cost (cost-effectiveness), and that once mobilized, these resources are protected from impairment and spent according to mission and donor purposes.

The goal of this book is to enable you and your organization to achieve this primary financial objective. The reality of many nonprofit organizations is quite different: recurrent cash crunches representing a mismatch in timing or amount, or worse—perhaps an unsolvable cash crisis that leads to high-cost fundraising, asset sale, or borrowing episodes. For others, fraud or mismanagement lead to misspending of funds, and the organization falls short of doing all it could in reaching its mission or complying with donors’ intent.

Surveys of chief executive officers and executive directors (CEOs/EDs) indicate that financial management is one of the areas that these managers find most challenging.1 Many managers, including those who are held responsible for the financial management of the organizations—whom we shall refer to as chief financial officers (CFOs) even though their actual titles vary widely—lack the necessary time, training, and aptitudes for properly managing the finance function. This book should prove helpful for the latter two issues. Furthermore, after “develop, communicate, and execute strategic plans,” the three “musts” for effective finance leaders in the business sector for the twenty-first century are (1) inspire other groups to get behind overall financial goals, (2) educate colleagues on financial implications of business decisions, and (3) improve core function efficiency to assume expanded responsibilities.2 Similar objectives apply to nonprofit financial leaders, and you will find the information presented here to be valuable for all three purposes.

This book will guide you on many facets of cash and investment management in order for your organization to achieve and maintain financial strength. We believe this is accomplished only by financial management proficiency. Proficient financial management includes using the best available methods and tools to achieve the primary financial objective. Our road map toward financial management proficiency includes practical help with:

  • Defining the appropriate financial target for your organization
  • Cash planning
  • Tapping sources of cash to improve your cash flow
  • Setting liquidity policies, including those for cash reserves, operating reserves, and strategic reserves
  • Gathering cash efficiently
  • Mobilizing and controlling cash
  • Disbursing cash efficiently while averting fraud
  • Managing your bank relationship
  • Borrowing for short-term needs
  • Investing for the short-term
  • Investing for the medium-term
  • Investing for endowments, annuity accounts, and retirement accounts
  • Harnessing information technology (IT) to better accomplish cash and investment management