Cash Flow Archives

I stopped rolling pennies to take to the bank. I realized that I can only fill, tape, and address a roll of 50 cents every five minutes. My maximum profit is $6.00 per hour and it’s cheaper to use the machine at the grocery store!

Now the same process is happening at the school that I direct. 75% of the money that parents pay is with an app that we provide for their phone. The payment flows directly to the bank for the school and eliminates a physical deposit. The software automatically updates their account on student billing and also adds the revenue to the general ledger. Several tasks are reduced or eliminated.

Now the school is automating accounts payable for trusted vendors. And preparations are underway for triple entry bookkeeping with Blockchain to pay all vendors automatically. There will be no more audit sampling because every transaction will be proven with blockchain.

What does it mean for you as a leader? Accounting staff positions are changing steadily. Will anything be left? How should you arrange your projected Operations Budgets?

The Institute of Management Accountants just had the slide below in a presentation. It shows that nonprofits will still need an accountant who gives financial advice for management decisions. And your budget should include more money for the software that automates the transactions.

Are you leading a nonprofit and don’t feel prepared for the winds of change? Check with me because Cash and Execution Decisions are part of business coaching.

Is your nonprofit about to lose money while you take a few well deserved days off? Can you afford to be home at Christmas?

In 2013, 19,000 children were told to take care of themselves every day of the government shutdown. Headstart had to close until government restarted..

I coach nonprofits to build a secondary source of funding. We live in a time of divided government where one party wants to shrink taxes and government provided services. Many fine organizations do not have the cash reserves to lose $100,000 in a shutdown and never get it back.

If you are in trouble, write to me and I’ll give you some ideas to survive through the President’s funding cutoff.

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Photo by Miguel Constantin Montes on Pexels.com

Giving is a good thing. The United Nations Foundation and the 92nd Street Y started a giving campaign in 2014 that has gone viral. CauseVox states that 2017 raised $125 million more than 2016 – $300 million in total.

They also point out that its a great time for donor education. 22 billion hits on nonprofit web pages happened that day in 2017.

I have a formula to see if it’s right for you, Find your expected Total Revenue. Multiply it by .1 and save the number. Now multiply that new number by .5 and you have a range. Do the charitable gifts that you expect this year plus Giving Tuesday fall within that range? If so, then you are robust enough in your charitable funding to invest the energy and work hours.

Let’s illustrate. The Rochester, NY YMCA 990 report had a revenue of $45 million dollars in 2017. $38 million was from fee for service so that was the primary financing plan. Because management is committed to protecting the agency, they should have set a goal for a 10% surplus of $4.5 million ($45 million x .1). They actually had a deficit of $2 million for 2016 and for 2017 so they need cash. (I’m available to coach 🙂

Because they know that priorities can change quickly, they also want a secondary source of financing (government contracts, charitable gifts, etc.) They take the surplus number of $4.5 million and multiply by .5 which equals $2.3 million. Their required range for donations as their secondary source is $2.3 – $4.5 million. Their 2017 charitable gift total was $4.2 million.

They know that the average gift on Giving Tuesday is $100. Let’s assume that they check with the Board and decide that they will solve 10% of their deficit (2,000 gifts) on Giving Tuesday. The effort seems worth it because they will also call attention to all of their social media. They realize that some of the gifts would have come in without Giving Tuesday but charitable donations are a very good secondary financing plan for them.

What did they get? You’ll have to check after Giving Tuesday 🙂

What if your normal gift total is $40,000 for the year on a $45 million budget?

Determine what is the best secondary financing and also do you have it already in operation? Many nonprofits only have government contracts and they desperately need to choose one more financing source. Many nonprofits do not receive much charitable funding. Don’t jump for Giving Tuesday just because everyone is doing it. It may not be your secondary source solution.

Use Giving Tuesday if its part of a larger plan for secondary source financing for your mission!

This is the 5^th of 10 articles on Sundays that look at the 990s to understand what is happening to nonprofits in general and give you some data for your own nonprofit. Today, the focus is on the ability of companies to make payroll. Is your next paycheck safe?

I advocate for nonprofits to set a 10% surplus target. Greg Crabtree has the same advice for privately owned companies. We are both worried about the bills that accumulate while waiting for cash to settle them.

For companies that make a product, the operating cycle begins when inventory has to be purchased or built. Bills have to be paid. A sale occurs, but cash still may not appear until merchandise is shipped and the cash is transferred. The entire period has to be financed.
For nonprofits, late payments by government can create a cash lag of months or years. Meanwhile, payroll has to be paid.

The largest nonprofit in the study so far, Children’s Village, has an Accounts Receivable of 27% of Revenue and only 3 days of its next payroll on hand in unrestricted cash. There are 1,319 people on staff!

In a study of 14 nonprofits of various sizes ($1 million – $85 million revenue), 7 nonprofits showed a decline in the ability to make payroll over 4 years. The worst performer was over 2 months in cash arrears on payroll. 232_2895318

What can nonprofits do?

They borrow from their restricted funds with the promise to repay
They borrow from prepaid tuition and fees or prepaid money on government contracts
They finance up to 75% of the collectible cash from government with a line of credit at a bank
They blend methods and simply tell staff that payroll will be late.

Any company with less than two payrolls in the bank in cash is putting the wellbeing of families in jeopardy who depend on regular checks. Richard Reeves tells us that jobs that pay less than $120,000 face an increasingly expensive middle class lifestyle with more and more income insecurity.

Nonprofits have missions to do good – and that includes generous treatment of staff.

Calculate your own cash for payrolls from your 990:

Copy the number from Page 1, line 15 and divide by 26 to find the Cash for One Payroll.
Copy the numbers from Page 11, lines 1 and 2, to discover total Cash on Hand at End of Year.
- Subtract from the Cash on Hand, restricted assets on page 11, lines 28 and 29 to find Unrestricted Cash.
Divide Unrestricted Cash by Cash for One Payroll.

If you have 4 payrolls in the bank, you have time to maneuver if bad days arrive. If you have less and less payrolls in the bank, you need to make a plan. Scaling Up business coaching creates a plan in 90 days, a quick win in the 2^nd quarter and a 20% growth in revenue in the 2^nd year. We’re here for you!

I’m doing a 990 study. Each Sunday for 10 weeks, I will give out one insight for leaders. Most people ignore the 990 and its 16 additional schedules. Life is too short to do all that reading!

Sustainability
Let’s start with a critical number – Net Income or Surplus. To start a company, cash is the 1019_4272975 key number. To buy a building or equipment, cash is key. Banks loan cash. Investors give cash. Customers pay in advance. But to keep a company going, there has to be a consistent profit or surplus which is the best source of cash. .

What Profit Do You Need?
What’s the required surplus for a business to stay in business indefinitely? Most businesses will soon be gone if there are year over year deficits, on life support with less than 5% surplus, and healthy over 10%. Why not profit of $1?
The income statement (Statement of Activities) does not include the cash that you need to keep investing in the business. Computers and cars need to be replaced. Technology is a huge investment. The surplus provides the cash to invest in new assets. Business owners will also want a profit on the money that they put into the business. Why would you put $500,000 into your business and not expect an annual return? That cash eventually has to come from profit.

Nonprofits/NGOs need 10% surplus to be sustainable for the some of the same reasons. But Nonprofits have a special additional burden. Nonprofits usually show more profit than cash because government pays so late. Let’s say that you make a profit of $100,000 this year. How much of that cash is in your bank on the last day of the year? Possibly $0 or less if government is involved! Nonprofits need a 10% surplus with the expectation that their cash account will stay above $0!

Depreciation
You may be lucky and have a lot of depreciation and bad debt allowance on your income statement. Why do we like depreciation? Because it’s not a cash item. Let’s assume that your revenue is $10 million. 10% profit will be $1 million. That’s a challenge! But let’s assume also that you bought a $5 million dollar electrical system that has a ten year life for depreciation but it will probably be working 20 years from now. Your income statement has a $500,000 charge for depreciation already so a 5% surplus ($500,000) and the depreciation ($500,000) is a fairly safe combination for the present.

Conclusion
Non profits in particular are usually happy if they have a $1 surplus. This is not a plan for the long term.

Today’s example is a nonprofit started in 1953. $45 million in revenue last year. Payroll of $1.4 million and 14 days of expenses in cash in the bank. Limited depreciation and an average of 1% profit over 4 years. If the CEO quit, would you enthusiastically apply for that job?

Scaling Up business coaching creates a plan in 90 days, a quick win in the 2^nd quarter and a 20% growth in revenue in the 2^nd year. Until next Sunday, keep your eyes on surplus!

If you want One Minute TurnArounds by email, please sign up!

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

Program spending is up and investment cash is down, according to the Business Wire. This has not prevented leaders from planning growth —- without cash.

74% say that lack of cash is not a problem! Unbelievable. Cash is the essential food of your company. Your strategy is worthless and your staff are underpaid if you run out of cash.

A key area of coaching is about growing and protecting cash.

https://www.businesswire.com/news/home/20180611005689/en/Nonprofits-plan-expand-lack-financial-strength-fuel

If you want One Minute TurnArounds by email, please sign up!

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

If you’re out of cash, you’re not the first leader to have the experience. In 2010, the New York Metropolitan Opera ran out of cash. They were surprised. They had a balance sheet which was filled with rich things. They had a budget of $291 million.

Here they were, humiliated and humbly asking singers to take a 10% pay cut. Cash is King

There is no substitute for cash. Your employees can’t be paid in dog food, bedding, free haircuts, or whatever your business produces.

Most leaders who don’t have a financial background love the profit and loss statement. It’s an unfaithful lover. Make a date with your balance sheet.

In the left-hand corner of the balance sheet, the first thing you see is Current Assets. The arrangement is that these highly liquid items are the most important because you can pay bills with them.

Line One is Cash followed by other lines in order of how quickly they can turn into cash. Cash is good.
Line Two is Petty Cash. It’s small. It’s hard to make payroll with Petty Cash if you pay minimum wage or more 😊
Line Three is Temporary Investments. These are great things but risky. I invested my parents’ life savings and it was $54,000 in 2008. I cashed out when it hit $26,000. I can’t even write this without saying a prayer of forgiveness to my parents in heaven. Are you big enough to watch this daily?
Line Four is usually Accounts Receivable. Is that money from a deadbeat government contract that plans to pay 4 months late? They won’t speed up just because you’re desperate.
Line Five is inventory. Is this stuff that’s going to sell next week?

The balance sheet holds a truth of your company on line 1. How much cash do you have?

How did the Metropolitan Opera survive? They have some world-famous murals by Chagall and they took out a special mortgage (Chattel mortgage) to get enough money to keep payroll going. Most of us don’t have the Chagalls and Rubens hanging around the factory so don’t get excited.

What about the income statement? The problem of the income statement is that you can’t tell the difference between real cash and other things like Accounts Receivable and Depreciation. Haven’t you had times where you are running a profit and counting the pennies to make payroll? The income statement is important but it’s a dangerous tool in the hands of a non-financial leader.

The Cash tools are part of the 4 key decisions because cash shortage will put you out of business faster than any other decision you make. Cash surplus gives you time to recover from a problem in any other area of business.

Dust off your balance sheet! Then plan to build your cash with TurnAround Business Coaching.

If you want One Minute TurnArounds by email, please sign up!

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

Nonprofits under $6 million in revenue are sometimes labeled as in the ‘Valley of Death.’

That’s a term from the for-profit sector (Greg Crabtree et al.) and it refers to the need to scale up administration fast even when you can’t afford the cost of hr, legal, and marketing. Infrastructure cash problems often disappear at the $6 million and above range.

It turns out that nonprofits have a unique worry – the indifference of funders who see no need to match services with reimbursements in a timely way.

The Open Road Alliance graphic shows that nonprofit leaders only cause 27% of their own problems. 46% of the crises in the nonprofit world are from funders. Keep scaling up to get your cash reserve!

Roadblock Analysis Report

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If you want One Minute TurnArounds by email, please sign up!

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

I’ve never been in a plane that ran out of fuel. Having fuel is such a critical part of travel but airlines plan carefully. I have never heard a pilot announce that we have to land in the wrong city because we need more jet fuel.

Non profits are having more and more trouble with fuel supplies. A lot of good trips to do good things are being cut short because the money ran out. Some groups have dreams of where they want to go but there is no way to fund the new idea.

Religious non profits are often a sub-group in special pain because they are in decline. It’s a lonely and failing feeling to be in charge but without cash. How can that be turned around?

One of the 4 Decisions Tools is Cash. When I mentioned to my friend that I help nonprofits find cash, he immediately asked if I lead boards in fund raising campaigns. He took me by surprise since the 4 Decisions doesn’t start there. But in the non profit world – of course – fund raising is the magic wand that gets pointed at leaders of nonprofits as the answer to everything!

Fund raising sounds wonderful, but it cannot be the only method for most organizations. Big gifts can take a long time to cultivate and it takes a lot of $10 gifts to get most nonprofits past their difficult cash moments.

Nonprofit leaders actually have 10 levers to improve their cash. The more powerful levers don’t normally include Fund raising.

Let me give an example. In my own nonprofit, I was surprised by changes in health insurance and so we re bid all of our insurance contracts. To my great surprise, a new broker got us the same policy from the same company and the total quote reduced our costs by $34,000.

What is easier for you? Asking 340 people to give $100 or reducing the insurance bill? Something I like about the 4 Decisions Tools is that you will feel more empowered as a leader as you use them. When you have a cash problem, you are not a victim who is waiting for a million dollar gift. You have multiple tools to solve the problem and your team chooses several levers and keeps that plane in the air.

Scaling Up is the textbook for the 4 Decisions Tools and one section is on Cash. And I also offer a workshop on the 4 Decisions if your team is ready to fly with a full load of fuel 😊

If you want One Minute TurnArounds by email, please sign up!

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

Cash Flow Archives - Page 2 of 3 - TurnAround Executive Coaching

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