Nonprofit organizations must plan for the year and near future properly, especially regarding cash flows. It’s not just a good idea, but a requirement according to FASB, the organization responsible for accounting rules, effective for fiscal years beginning after December 15, 2017. The idea is to show that nonprofits are solvent and can pay all their bills the following year. This is usually not a big deal, since the budget gives information about this requirement, but it may not be enough for the auditors.

Both expenses and revenues will be scrutinized a bit by the CPA auditors to be sure they are reasonable. So, it’s good to start organizing documentation regarding cash flow, and not scramble at the last minute. Some ideas to consider:

1- Keep all notes regarding the budget preparation. Be mindful of the largest numbers on the budget, which could be related to payroll, for example. If an organization is planning to hire more people, be sure to account for salaries, payroll taxes and benefits. Same for major cash inflows – keep detail documentation about when they are expected, and the degree of certainty of such funds.

2-Be sure you have a cash-based budget, indicating when cash is to be received and paid up. Maybe you’ll have a large expense in May, but you won’t have money to cover for it until July, so it’s time to get in-between funding, such as a line of credit, which is easier to get before you really need it.

3- Disclose any board of directors restrictions on money received. Typically only funders' wishes have been "officially" considered, but in the near future, any other internal restrictions should also be presented. So, keep detailed minutes of board meetings and any other documentation showing that certain funds have been tagged to use for certain purposes.

4- Send emails or snail mails to major donors requesting confirmation that they plan to make donations as usual. This is better than just phone calls confirming the situation. The idea is to have paper or another trail that justifies the amounts you plan to get, proving that the numbers are more than a dream.

5- Document any major changes to the budget from one year to the next.  A major change usually involves amounts more than 10% from the past. For example, if you’re paying $2,000 in monthly rent, but you show only $1,500 for the future, be sure to have good documentation regarding this change.

6- Keep a cash cushion as large as possible to take care of unexpected expenses. This is very important to show that the organization is ready to move forward long term. Many nonprofits keep a cushion of about 10% of their budget.  The larger, the better, showing that the organization is ready to handle any surprise costs.

 


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