Guest Post by Karen Houghton, CEO and Founder of Infinite Giving
With cuts to federal funding for nonprofits and economic uncertainty across the board, organizations of all types are evaluating their current financial standing. For nonprofits, this might look like undertaking a fundraising assessment or revisiting your strategic plan in your next board meeting.
Getting your financial ducks in a row is a reasonable reaction to changes in the market and other global events, but that shouldn’t be the only trigger to take charge of your financial management and sustainability. While some economic trends have bigger effects than others and every organization has a unique situation, we do know one thing: the best time to start preparing for your nonprofit’s future is now.
In this guide, we’ll explore how managing your nonprofit’s cash proactively today will help you further your mission tomorrow.
Nonprofit cash management FAQs
Infinite Giving defines cash management as “all the strategies you use to manage cash flow, steward your reserve funds, and responsibly handle donation revenue.”
It’s an overarching principle that covers a lot of different aspects of nonprofit finances, so let’s cover a few common questions to break it down.
Is cash management specific to physical cash?
No, cash management is about how all money moves through your organization, not just “cash.” It encompasses your nonprofit’s liquid assets, which are assets or reserves that can be exchanged into cash quickly, without a significant loss of value.
Your nonprofit’s liquid assets could include:
- Operational reserves
- Project-related and capital reserves
- Non-cash assets (e.g., stocks and endowments)
- Awarded multi-year grants
- Scholarship funds
What documents and resources are used in evaluating cash management?
While all of your nonprofit financial statements can inform your cash management, the statement of cash flows and your annual budget will likely be your primary resources. The statement of cash flows gives you a snapshot of how money travels in and out of your nonprofit over a period of time.
Your nonprofit accountant is also a valuable resource for understanding how your current operations are affecting cash management. In addition to preparing your financial documents, they can speak to the intricacies of your current situation.
Are cash management strategies only for large nonprofits?
No! Many nonprofits can benefit from implementing a cash management strategy, regardless of annual revenue. The importance of planning for the future and responsibly managing assets doesn’t change based on the amount currently sitting in your nonprofit’s accounts.
Cash management: Why it matters
Your nonprofit financial activities deserve the same level of care and intention as your programs and other mission-related activities. Effectively stewarding cash enables your mission to grow.
Here are a few of the specific benefits of responsible, proactive cash management:
- Transparency: If you know how cash is moving in and out of your organization, you’ve got a clearer picture of your nonprofit’s operations, which empowers your decision-making.
- Sustainability: Healthy cash management practices help you stay on budget and set aside funds for the future, increasing your capacity to weather storms and respond appropriately to future funding trends.
- Trust: Your donors want to know that you’re using their contributions effectively. When you communicate financial stewardship practices clearly and accurately, you can build long-lasting, trusting relationships with your supporters.
Being aware of your nonprofit’s daily cash flow is part of stewarding your donors and mission well. And just like you’re always looking for ways to go above and beyond in serving your community, being proactive with a strong cash management strategy that takes advantage of current financial circumstances and opportunities amplifies the benefits your nonprofit can reap.
Strategies for proactive cash management
Your nonprofit’s financial situation is unique, but any organization can consider the following recommendations to take a more proactive approach to cash management.
Reserve Fund
A good rule of thumb is to keep six to 12 months of your nonprofit’s operating expenses in a reserve fund. But if this money just sits in a savings account, you could be missing an opportunity. A typical savings account may not keep pace with inflation, meaning your funds won’t go as far when you need them most.
Proactive next step: Explore generally lower volatility (but not risk-free) funds to store your reserve fund in, such as sweep accounts, which are brokerage accounts that offer more FDIC coverage (up to $5 million) than a traditional bank account, CDs, and US treasury bills. To get a picture of what this could look like for your nonprofit, check out how the Atlanta Land Trust built up its reserve fund.
Non-cash gift acceptance
If your nonprofit is restricted in what sorts of contributions it can accept, you could miss out on lucrative donations. Non-cash gifts, like stocks and cryptocurrencies, are rising in popularity with donors. This is a great way to diversify your revenue streams, which is a core financial management principle.
Proactive next step: Investigate options for accepting non-cash gifts at your nonprofit. Look for solutions that prioritize immediate liquidation to help preserve the value of every donation.
Internal controls
Internal controls are a risk mitigation strategy. They are internal policies and procedures that add a level of accountability to daily financial activities.
Here are a few examples of cash management internal controls:
- Requiring approval from the Executive Director for expenses greater than $100
- Having two staff members count and log petty cash daily
- Regularly updating passwords
These should all support your overall risk management strategy, limiting the opportunity for both intentional and unintentional fraud.
Proactive next step: Evaluate your current internal controls and identify any gaps. Then, ensure internal controls are in place and followed.
Nonprofit investment advisor
To align your nonprofit’s cash management with your needs and risk tolerance, consult with a nonprofit investment advisor about your unique financial situation and the current financial opportunities. In addition to advising on how to achieve your nonprofit’s goals, investment advisors can also design a strategy that fits your comfort levels with risk and reward.
Proactive next step: Research nonprofit investment advisors to determine whether tailored, professional financial recommendations would be a good fit for your nonprofit.
The old saying “time is money” rings true for cash management. When your nonprofit takes proactive steps to ensure it’s stewarding donors’ investments wisely, you’re building a strong financial foundation for the future. So don’t waste any more time (or money), and take control of your cash management today.
DISCLOSURE
Infinite Giving Advisory Services, Inc. is an SEC registered investment adviser. Advisory services are only offered to clients or prospective clients where Infinite Giving Advisory Services, Inc. and its representatives are properly licensed or exempt from licensure. This content is solely for informational purposes. Past performance is no guarantee of future returns.
Investors’ experiences may vary from the content. Nothing in this presentation constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Infinite Giving manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary.
Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. Investing involves risk and possible loss of principal capital. No advice may be rendered by Infinite Giving Advisory Services, Inc. unless a client service agreement is in place. Donation services provided by Infinite Giving Technologies, Inc.
About the Author
Karen Houghton is the CEO and co-founder of Infinite Giving, a Registered Investment Advisor that helps nonprofits build financial sustainability. With a background in both nonprofit leadership and venture capital, Karen brings a rare blend of heart and strategy to financial stewardship. She serves on multiple boards and has been recognized by Women in Technology, Atlanta Technology Professionals, Salesforce, and more.
As a trusted advisor and advocate, Karen is democratizing access to wealth-building tools and reshaping how nonprofits think about money. Her work empowers tax-exempt entities to grow their assets, weather uncertainty, and fund their futures.