Monitoring Your Nonprofit’s Financial Success
One area NFP Partners focuses on is helping our nonprofit clients monitor their financial performance. This includes solid budgeting, monitoring the budget–to–actual revenue and expense, and forecasting the future. Cash forecasting is especially important given the challenges that are presented with nonprofit accounting rules and revenue recognition. For more information on this topic, visit this article.
Now, let’s focus on the preparation and review of a projection report. This report is imperative to the assurance that your nonprofit is on the right path for the current fiscal year and the coming years.
If you are a nonprofit that struggles with the accrual basis of accounting and the requirements of revenue recognition, you are not alone. To combat this struggle, we work with nonprofits to develop a report that assists in explaining what the future might look like on a cash basis. As one board treasurer repeatedly states, “cash is king!”
The report we generally use as a basis for a cash forecast starts with a Revenue and Expense Report. The difference is that this cash forecast includes adjustments made for Accounts Receivables and Accounts Payables to get to the projected cash balance of the organization. Fortunately, nonprofits can use this report by updating each month with actual results as they occur. The remaining months are entered as they were budgeted. This report can also be used as a tool to make updates to what was budgeted in future months.
Nonprofits are continually seeking new revenue sources and that inevitably leads to changes that would impact the budget. Also, when your nonprofit is successful in winning that new grant, you can update the amounts in a document such as that shown below. Additionally, you can track the impact to the cash balances. Accordingly, this helps project how performance will be in remaining months.
For additional articles to help direct your nonprofit to strong financial leadership, click here.