A Simple Model for Cash Flow Management in Nonprofits
18 Pages Posted: 13 Feb 2016 Last revised: 18 Mar 2016
Date Written: February 13, 2016
Cash flow management is one of the most significant challenges that face nonprofit organizations. A shortage is cash, even if it's temporary, is a major risk factor for the organization. Nevertheless the standard method for cash flow management – a cash flow projection - does not produce satisfactory results for nonprofits. The weak point of the cash flow projection method is that it ignores the inherent unpredictability of the income stream. This is a typical characteristic of the nonprofits sector, due to its reliance on income stream from donations and grants.
In this article I present a simple simulation model that overcomes this problem. The simulation model connects between the cash flow and the accounting data. It enables the organization to assess its cash flow risk, and to analyze different scenarios that can eliminate the risk.
The model was tested in several nonprofit organizations, and the article presents its implementation in one of them.
Keywords: cash flow, nonprofits, financial management, budget
JEL Classification: L30, M40, M41
Suggested Citation: Suggested Citation