Altus Dynamics Blog

5 Ways to Avoid a Cash Flow Crisis

Posted by Nicola Dickinson on Jan 27, 2016 10:04:45 AM

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Earlier this month, 450 Toronto-area Goodwill workers were locked out due to a "cash flow crisis" that led to a shutdown of the long-standing charitable organization, delivering a devastating blow both to staff and those who rely most on the non-profit organization.

The question is: why did this venerable Nonprofit, which earned $28.1 million - including more than $4 million from the province of Ontario - in 2014, collapse so suddenly? So far, Goodwill CEO Keiko Nakamura has not provided clear answers, so we can only wonder what may have caused some of these issues.

Since we work with many Nonprofits - helping them leverage the latest in technology to manage their finances effectively - we've decided to pull together 5 ways that your Nonprofit can make sure you don't experience a "cash flow crises" of your own:

1. Secure Real-Time Access

One potential contributor to a cash flow issue is not having real-time access to financial information. We find that many Nonprofits report on budgets/spend monthly or even quarterly, which means its easy to overspend because of the time lapsed. Having access to real-time budget information means that you know exactly where your organization stands before you make every decision.

Also, it's usually only one or two people in the organization that can pull budget and spend reports, so by the time the information is collected and then distributed to every stakeholder or budget owner, it can be too late to make adjustments in spending.

Having a system where each budget owner can have secure access at any time to what they have budgetted for, committed to and spent not only spreads the responsibility, but also creates timely and informed financial decisions.

Transparency to this type of information is key, but to take it to the next level you can create workflows to make sure that budget steps like approvals are always met prior to spending. Doing this online and in one system that is linked to the budget ensures no neccessary paperwork gets lost in the shuffle (since no paper is involved!)

2. Budget Planning

Although many Nonprofts have an exhaustive budget planning process that links their operational costs to estimated revenues, sometimes even the best-laid plans fall short. It's essential to have software that can help you with both the short-term and long-term organization budgetting goals and needs. Allocating expenses to a particular fund upon entering them into your system eliminates the need to reconcile them in an Excel file later and ensures budget items are taking from and giving to the correct accounts.

3. Automated Checks and Balances

While transparency to budgets and proper planning are a great start, having software that has built in budgetary controls guarantees that no rules are broken. All checks and balances and approvals are done online and linked directly to the budget, showing what's been budgetted for and what funds are actually available. This keeps auditors happy and ensures organizations are spending to budget. In essence, if someone puts in a request to make a purchase using a budget that has no additional spending capacity, the transaction will not be allowed to process within the system.

4. Grant Management

Many Nonprofits receive grants from the government, so it's important to keep track of this funding and know when it's coming in and how it's being spent. Using software with grant management functionality, organizations can see all their grants and get an accurate view of their related expenses, track important grant reporting dates, track when they will receive grants as installments, and stay on top of all of their milestones. This software makes it easy to know when money will be coming in and out, and to budget and plan accordingly.

5. Deeper Payroll Integration

When Goodwill's cash flow position and forecast became unstable, they weren't able to meet the payroll committments and had to shut down operations abruptly, deepening the tragedy for all involved. By having a system that integrates your finance, HR and payroll you can see how payroll committments can impact your bottom line in advance. When this information is siloed and has to be pulled and reported manually, it's much harder to make informed decisions in time.

What are other ways your Nonprofit can ensure financial stability? Download this Free Guide: 5 Tech Secrets for the Evolving Nonprofit and learn how to harness technology to ensure your Nonprofit has financial systems and processes that are built to last.

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This Post Was Written By Nicola Dickinson
Nicola Dickinson is a Founding Partner at Sparkrock. She formed Sparkrock with a vision and mandate to deliver award-winning, meaningful and affordable technology solutions exclusively for the non-profit and public sector. With a passion for assisting non-profit and public sector, she provides true value by being an active member of the non-profit community.
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