For many nonprofit organizations, the effective management of cash flow is a common concern that often leads to the question, “How can I accurately track and manage cash flow to avoid financial issues?”
Our solution: a 12-month cash roll forward.
In the video below, Laura Bertagnolli, CPA VP of Finance at Signature Analytics, discusses how nonprofit organizations can effectively manage cash flow using the 12-month cash roll forward.
In this blog, we delve into the 12-month cash roll forward and how this tool can help nonprofits manage cash flow and drive success.
“We strongly advise including a 12-month cash roll forward in your financial presentation to the board of directors. This document lets you review and approve capital expenditures, helping you understand how your finances will look over the next year. It ensures that your available funds won’t fall below a limit set by your board.”
The 12-Month Cash Roll Forward: What It Is and How It Works
For nonprofit organizations, the 12-month cash roll forward is a powerful tool that merits a closer look. It plays a crucial role in addressing the complex issue of cash flow management while ensuring long-term financial stability. But what exactly is a 12-month cash roll forward, and how does it work? Let’s dive in.
Defining the 12-Month Cash Roll Forward
The 12-month cash roll forward is more than just another financial document; it’s a linchpin that connects budgetary forecasting and cash flow management. This tool provides nonprofit organizations with a comprehensive view of their financial health over an extended period.
How It Works
The 12-month cash roll forward operates by:
Offering Full-Spectrum Financial Insight
Unlike traditional budgeting methods that primarily focus on revenue and expenses, the 12-month cash roll forward takes a more comprehensive approach. It considers all financial elements, including capital expenditures, which are typically excluded from surplus and deficit budgets. By including capital expenditures, nonprofits gain a holistic understanding of their financial position, empowering them to make more informed decisions.
Projecting Cash Flow
This tool extends financial projections for an entire year, allowing nonprofits to anticipate and navigate potential cash flow challenges. It provides a detailed week-by-week breakdown, giving organizations a deep understanding of when funds are expected to come in and when expenses need to be met. This level of granularity is instrumental in preventing cash flow crises.
Aligning with Reserves and Board Oversight
By incorporating capital expenditures and projecting cash flow, nonprofits can ensure that they do not dip below a financial “floor” set by their board. This means maintaining a financial cushion that safeguards against unforeseen challenges. The 12-month cash roll forward enables nonprofits to maintain this financial safety net and gain the confidence of their board members.
Facilitating Proactive Decision-Making
Armed with a 12-month cash roll forward, nonprofit leaders can make strategic decisions with clarity. They can allocate resources more effectively, embark on new initiatives with confidence, and tackle financial hurdles head-on. Whether it’s launching new programs, expanding services, or making critical investments, this financial tool provides nonprofits with the insight they need to make well-informed choices.
Addressing Common Nonprofit Financial Challenges
Nonprofits often face a myriad of financial challenges in their mission to create a positive impact. These challenges can include:
Inconsistent Cash Flow: Many nonprofits experience fluctuating income streams, making it challenging to meet regular financial obligations. The 12-month cash roll forward plays a pivotal role in addressing this issue by providing a comprehensive overview of expected cash flow. Nonprofits can anticipate periods of reduced income and take proactive measures to maintain financial stability.
Budget Shortfalls: Unexpected expenses, delays in funding, or changes in the economic landscape can lead to budget shortfalls that disrupt essential programs. By extending financial projections over an entire year, the 12-month cash roll forward acts as an early warning system, allowing nonprofits to identify potential budget shortfalls well in advance and make necessary adjustments.
Board Confidence and Transparency: Maintaining the trust and confidence of board members is crucial for nonprofit governance. Utilizing the 12-month cash roll forward demonstrates a commitment to sound financial management and transparency. It offers a clear picture of the organization’s financial position, instilling confidence in board members and ensuring collaborative, informed decision-making.
Strategic Planning for Impact: Nonprofits need to strategically allocate their resources to maximize their impact. With the insights provided by the 12-month cash roll forward, organizations can make well-informed decisions regarding resource allocation, timing of fundraising campaigns, and the launch of new initiatives. This tool empowers nonprofits to align their strategies with their mission effectively.
Long-Term Financial Resilience: The ability to project cash flow over an extended period is vital for building and maintaining financial reserves. These reserves provide a safety net that nonprofits can rely on during challenging times, ensuring the organization remains resilient even in the face of financial uncertainties.
Uninterrupted Mission Fulfillment: Ultimately, the 12-month cash roll forward safeguards an organization’s ability to deliver on its mission consistently. By ensuring reliable cash flow management, nonprofits can continue making a positive impact in their communities without disruptions or financial stress.
By addressing these common financial challenges, the 12-month cash roll forward is a versatile tool that empowers nonprofits to navigate the complexities of financial management and sustain their vital work.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analytics today.