As nonprofits go, most of us know that it’s rough out there right now and likely to get worse in the immediate future before it starts to get better. (PNC Chief Economist Stuart Hoffman forecast that the U.S. economy will continue to suffer into the second half of the year. In fact, it will be 2010 before the economy gets real traction from the various federal policy stimulus initiatives, Hoffman believes.)
So what’s a nonprofit to do? Well, below are some tips (in no particular order) your organization can use to manage its cash flow deficit, if by some chance you find yourself in this current predicament:
1. Cut expenses – look for items in your current budget that can be deferred or cut outright. Also, keep your eye on costs that continue to outpace your revenue growth.
2. Liquidate investments – perhaps your organization has stocks, bonds or certificate of deposits (CDs) that you can liquidate. If you know you’re going to have a pressing cash need in coming months, consider working with your local bank to structure the maturity of your CDs for imminent cash needs.
3. Increase fundraising efforts – consider rearranging your fundraising schedule to accommodate your cash flow needs. For instance, you could consider moving a direct mail appeal to another time in the year when your organization is in need of unrestricted funds to cover overhead costs.
4. Speed up collection of receivables – if there are government agencies that owe you money, you could cask for an up-front payment in advance of the schedule. Similarly, a foundation may consider rearranging its disbursement schedule if you anticipate a cash flow deficit.
5. Obtain a loan or line of credit – a line of credit typically is used to fund short-term working capital needs such as payroll, rent, or overhead expenses. Also, it’s useful to cover incoming receivables. The only costs incurred when obtaining a line of credit involve closing costs and interest expense (once you begin using your line).
6. Reduce program expenses – the for-profit sector does it, so why shouldn’t the nonprofit sector at least explore this option? And while this may seem unthinkable to you at first glance, consider the alternative: burning out your staff (see Cindy Leonard’s “Preventing Burnout” blog entry from May 12).
Appropriately, the Bayer Center will offer a class on debt management best practices appropriately titled, “‘Debt’ Is Not a Four-letter Word,” on June 26, from 9 – 11 A.M. The class will feature instructors Scott Leff and me of The Bayer Center; Lisa Kuzma, Richard King Mellon Foundation; Gloria Ware, Fifth Third Bank; and Misty Parshall, CPA, Schneider Downs & Co., Inc. We’ll instruct you on the ins and outs of the right reasons to borrow money in these tough economic times.
Finally, I invite you to email me with any questions you might have regarding this topic and you’ll be entered to win a 1 GB USB drive. One winner per week through the end of May. Happy cash flow management!