Ask the CFO:Sound Financial Planning [Your community foundation name/logo]
Ask the What is sound financial planningCFO and management?• Internal Controls: Segregations of duties; checks and balances. Five for small NPOs: • Set the control environment: It starts from the top. Staff made aware that there are policies in place that must be followed. • Define who is responsible for what. • Physical controls: Lock it up. Password computers, check stock locked in drawers and signed out. Undeposited cash and checks should be locked up. • Cash: If petty cash, must have a receipt, if a fundraiser, two people count. • Reconciling the bank statement: Monthly • Other controls: Payroll; review and approval of time sheets, two signatures on large checks, the person handling money not allowed to sign checks.
Ask the Should you carry debt? HowCFO much?Borrowing should be done so that there will be a substantial amount of benefitsfor the NPO and not just to pay for expenses. NPOs should devise new ways ofgenerating revenue such as creating new ways to entice donors to give to theirorgs instead of taking out loans if they wish to expand operations or invest in newways.•Short-term Loans: Working capital loans, bridge loans and Lines of Credit canprovide needed funding when there is a timing issue on receipt of revenues.•Long-term loans: Capital expenditures such as equipment and real estate.•Resources: • PRI
Ask the How do you build a reserve?CFO• Definition: An operating reserve is an unrestricted fund balance set aside to stabilize a NPOs finances by providing a cushion against unexpected events, losses of income, and large unbudgeted expenses. • A reserve should be used to solve temporary problems, not structural financial problems, such as a long term or permanent income shortfall.• Where does it come from?: Usually over time from operating surpluses that intentionally designate a portion to a reserve. Occasionally, from a gift or grant.• How much should we have?: It depends. Most are based on a formula to have enough cash to cover operating expenses for a number of months. At the low end, reserves should cover one full payroll plus taxes. Note: At the Foundation, 4 months current operating budget plus $50,000 for technology.• Do I need a policy?: To be a viable operating reserve, there should be a board agreement and policy about the purpose and use of operating reserves. • Policy should define and set goals for reserve funds, clearly describe authorization for use of reserves, define how reserves will be replenished (paid back), and outline requirements for reporting and monitoring.
Ask the Emergency Funding SourcesCFOCash Flow Management • Get grants in the door earlier than the promised date. • Speed the inflow of accounts receivable.Donated Income • Initiate special quick-hit fundraisers designed to generate dollars from long-time supporters. • Solicit grants from discretionary funds managed by a funder’s CEO, Program Officer or corporate giving officer. • Ask a funder who as awarded a multi-year grant to allow a release of restrictions during your crisis. • Apply for funding from organizations that maintain emergency grant funds.
Ask the Emergency Funding SourcesCFOEarned Income • Increase the prices of your products or services. • Analyze the possibility of selling what you are now providing for free. • Sell valuable information that you have that others need. • Sell ‘back office’ services.Debt Financing • Obtain short term loans (secured or not). • Obtain a new line of credit or extend a current line of credit. • Borrow against commitments for future revenues. • Reach out to other NPOs with loan funds for cash flow purposes. • Obtain a loan from a foundation’s emergency loan pool.
Ask the Emergency Funding SourcesCFOExisting Assets • Sell assets. • Sell receivables.. • Revaluate your invested assets.. • Rent office space or equipment to others. • Spend down reserves.
Ask the What are the top financial practicesCFO that nonprofits should follow?• The organization should be periodically audited or reviewed by an independent accounting firm.• The organization should maintain adequate commercial general liability insurance coverage and have a directors and officers liability policy.• Reconcile bank accounts monthly.• Follow internal control policies.