A simple model for cash flow management in nonprofits

Malki, Elli (2016): A simple model for cash flow management in nonprofits.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Nonprofits, financial management, cash flow, NGO
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L30 - General; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L31 - Nonprofit Institutions ; NGOs ; Social Entrepreneurship; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting

References

Malki E., "Guidelines for the preparation of budgets in not-for-profit organizations", SSRN Electronic Journal, January 2010.

Malki E., "A servant of two masters: The dual role of the budget in nonprofits", Journal of International Accounting Auditing and Taxation 1(1):002-007, August 2014.