“Well, how much cash should we have?” a client asked during a recent Board meeting. Scott and I explained that an organization should have at least a 3 month operating cash reserve (90 days of cash), and aspire to a 6 month cash reserve (180 days of cash). In keeping with statewide best practices, it was absolutely the right answer.

Still curious, our client inquired, “According to whom should we have 3 months of cash on hand?” And there you have it – the question that kicked off in each of our minds the need to move beyond conventional wisdom and arrive at an empirical explanation as to why nonprofits should maintain at least 90 days of operating reserves. Or should they?

Logically, the next step in our thinking was to obtain a national sample of nonprofit financials to begin our analysis. We turned to the National Center for Charitable Statistics (NCCS) for our figures, and obtained financials for over 230,000 U.S. nonprofit agencies.

As you may have already guessed by now, our empirical findings call into question whether or not a 3 month cash reserve is a realistic guideline for all nonprofits to follow, indiscriminate of an agency’s size or mission. For starters, out of the 230,759 nonprofit organizations we examined, the median number of days cash on hand was approximately 75 days, with 25% of the upper distribution (top quartile) holding 187 days of cash or more, and the lower distribution (bottom quartile) holding 19 days of cash or less.

Further, an agency’s unique mission and size illustrate why it’s arbitrary to apply the 3 month cash operating reserve to all agencies without taking into account these important characteristics. For example, to ask that a human service organization target a cash reserve of 180 days seems unreasonable given that the median number of days cash on hand for an agency with such a mission is 62. Additionally, we can see that arts organizations should attempt to grow a cash reserve in excess of 90 days since that is the empirical “norm” finding. We encounter similar difficulties when analyzing cash operating reserves by organizational size (operating budget).

Days Cash on Hand by Mission TypeIn the final analysis, we recommend you benchmark your agency relative to organizations of comparable mission, size, and even location to assess your financial health. This is something we can do for you with our statistical data analysis as part of the Bayer Center’s Financial Wellness Package.

Only when you are fully aware of your internal financial performance (trends) and external positioning (benchmarking) can the Board and senior management truly begin to layout a realistic and informed cash reserve policy, one that is both realistic and in line with peer organizations.
Days Cash on Hand by Budget Size

A how-to guide on getting more out of your board

A how-to guide on getting more out of your board

One of the really nice things about my job at the Bayer Center is the abundant amount of learning opportunities around me. Accordingly, yesterday I sat in on Sally Mizerak’s “Using a Dashboard” class.

For those of us not in the automotive sector, an organizational “dashboard” is likely a “user-friendly, often color coded summary chart(s) of the key indicators of an organization’s performance.” I liken it to CliffNotes for staff, management, board members, donors, etc.

The “art” of designing your organization’s dashboard really depends on what story/message you’re trying to summarize. For instance, Scott Leff and I have been busy recently helping organizations reduce the stacks of internal financial reports they disseminate to board members and instead replace these trees with a single, colorful, summary financial report. From this report, board members can quickly glean how the organization is performing (actual vs. realized budget), how much cash is available, and how the organization is financially performing relative to its local and national peers (benchmarking) and its own past results (trending).

[Editor’s note: My colleague Jeff Forster points out that he posted about Dashboards last month with two big points: 1) dashboards aren’t just about financial measures, although they’re obviously quantifiable and 2) CRM databases have thrust dashboards to the fore as though they’re something new under the sun (but they’re not). Also, Jeff and me rode together in CDCP’s Pedal Pittsburgh (50+ mile) ride last week and spent much of the time discussing this blog entry and nonprofit dashboards, kind of.]

One way to get the internal dashboard dialogue started is to ask yourself if your board’s financial reports are telling the story that you are hoping to convey. If the answer is “yes,” then next ask yourself if you can do a better job of summarizing this information into one report?

If you think you can be doing better, then you probably are not using your board’s time wisely. (You’re supposed to be talking about mission-related information and not spending all your time on financial minutia.) A suggestion – consider putting aside a few hours to spend with your staff/colleagues/Finance Committee and conference on what financial picture/story you’d like to convey to your board. The benefits you’ll get in return from a more mission-focused board will far exceed your time investment.

Have a question or something to add to this post? Leave a comment, and you’ll be entered to win a 1 GB USB drive. One winner per week through the end of May.

dashboardexample1

On the one hand, dashboards are nothing new.  On the other hand, they’re all the rage.  Dashboards can be on paper or dynamic, on-screen views, but whatever form they take, a dashboard is a snapshot distillation of the current state of key measures of success.

Dashboards are nothing new because organizations that have taken the time to figure out what their key measures are and to collect the data needed to evaluate them have created dashboard-like reports and reviewed them regularly.  There’s a strong strain in strategic planning and outcomes measurement that leads to dashboards to figure out whether the strategies are working and the outcomes are being achieved.  The “new” vibe derives from fundraising packages and Customer Relationship Management (CRM) systems offering on-screen, live dashboards.  In addition to the point-and-click ease of use of on-screen dashboards, the up-to-the-minute nature of the data can create the incentives that have long been needed to get users to update whatever part of the data stream they own.  If the boss may look at the dashboard on any day (not just the last day of the month when the summary report is printed), I have to keep my data up to date in order to get credit for the work I’ve done.

In my first data-heavy job, I realized that the most important ingredient to good data entry was the feedback loop.  Supervising a team of highly capable people with pretty low motivation (workstudy students), I realized that I had to put the data they created back in front of them quickly for two reasons:

1. to show them how their little bits of record-keeping turned into a vitally useful whole for our organization.

2. to show them their own mistakes and make them responsible for fixing and not repeating them.

A dashboard can be a constant expression of the dynamism of our work.  One of my favorite measures that I put on a client’s dashboard (which opens whenever anyone opens the database) is total unique individuals served all time.  Why should we only look at that number at annual report and fundraising proposal time?  It’s fun to watch it grow week in and week out.

The grand irony of this post is that I wanted to include some good examples of nonprofit on-screen dashboards that I could find on the web.  I couldn’t find any.  Do you have a dashboard that you’d be willing to share?  Leave a comment; we can smudge out any data that’s confidential.