One of the biggest challenges for most non-profits is management of the organisation’s cash flow – if not managed well, it can become one of the main reasons for organisational failure. To make it worse, looming problems can escape our notice because we often look back at past performance more than we look ahead. That could be because the future is always uncertain.
In essence, cash flow can be defined as the receipts of the organisation less the outflow of cash for expenses. A positive cash flow means that the organisation brings in more funds than it spends and so is one positive indicator of the financial health of the organisation. A consistent, positive cash flow ensures there is cash on hand to cover expenses on a timely basis.
Sound cash flow strategies should feature strongly in our organisation’s planning and must be built on careful forecasting of when money can be expected to be received and when it must be paid out. We have assisted many organisations to set up, and use for monitoring, effective cash flow projections using a basic spreadsheet. As long as the organisation has a budget for the year, this is a simple but vital way to keep our eyes on the road ahead, despite its twists and turns!
Here are some practical tips for creating a more positive cash flow:

1. Increase and diversify your income sources – by building a realistic and robust income generation strategy, your organisation will seek to gain new sources of income that will keep the receipts coming in.
    
2. Ensure that income is collected on a timely basis – make sure that the organisation:
   1. Has mechanisms in place to request funding by the time it is due.
   2. Compiles well, and provides, all necessary reports to funders within their prescribed time limits, which allows tranches to be paid on time.
   3. Invoices and then collects amounts due from members or third parties promptly where goods or services are provided and, if credit terms are offered, carries out credit checks first and maintains stringent credit policies that do not allow customers to forget about making their payments.
   4. Where registered as a VAT vendor, submits VAT returns on time and follows up regularly, with SARS, on refunds due.

1. Manage expenses and cut them back where possible – by eliminating unnecessary costs the organisation will reduce the strain on the organisation’s cash flow. This means keeping an eye on all expenses.
2. Keep costs flexible – consider leasing, instead of buying, equipment, and identify operations or tasks that could be cost-effectively outsourced to third-party service providers, where contractual arrangements can be adjusted when cash inflows dip.
3. Prioritise payments – ensure that payments are only made when due and, where necessary, negotiate improved payment terms with the organisation’s suppliers.
4. Increase efficiencies – take advantage of technological advances wherever possible to streamline processes and increase efficiency. For example, cloud accounting systems can store documents without the need for printing or paying for additional electronic storage, and some can assist in improving business processes.
5. Make the money the organisation does have “work” – if there is a surplus of cash, it should be deposited in an interest-bearing account. Where that surplus is the organisation’s own funds, the organisation should build up reserve funds for times of emergency; we suggest that these funds should be built up to cover at least three to six months of operating expenses.

If you feel that Ziyo could assist you in setting up a cash flow projection, in putting some of the above ideas into practice, or in managing related risks, please email us at ziyo@ziyo.co.za.