This is the first of three blogs sharing ideas on the immediate and medium-term financial issues of solvency, sustainability, and collaboration.

“Revenue is vanity, profit is sanity, but cash is king” – whilst a quote aimed at the commercial world, it is just as relevant to non-profits. Ideally, we want money in and money out neatly scheduled so we remain in credit. The real world is not like that at the best of times, and certainly not now.

Robust cashflow management has never been more important. As a trustee, if I could have only one piece of financial information, it would be the cashflow forecast. A picture of your predicted bank account movements is invaluable.

Here is a rundown of matters to consider:

Money In

Don’t ask, don’t get – many funders are offering flexibility and more support for grantees – could any arrears funding be provided in advance? is there any leeway to convert restricted into unrestricted funding? do they have any additional funding available?

Be on the front foot – if you are invoicing local authorities and others get these out promptly; if grant instalments are subject to completion of a delivery report get this submitted

Clarity on credit control – when cash is not under pressure, active management of debtors can slide; dust off your procedures and ensure you are clear who is responsible for what; don’t assume payments will come through with the usual speed, others may have cashflow pressures, some may simply not have their team available to process payments

Ours to keep – be clear whether any assistance is a gift/grant or a loan/debt and ensure the board is clear too

Identify income changes – we know income will drop with fundraising activities cancelled and charity shops closed – what other income streams could be affected? dividends lower impacting investment income, legacies are often unpredictable, could these be slower and lower in value?

Money Out

Take control – Use the full credit period offered by suppliers; can one-off lump sum costs be paid through regular smaller direct debits? if cashflow is really tight you may want to cancel direct debits and manage payments to fit the cash available

Necessary or not – review your budget for discretionary spend – delay or cut completely but do understand the impact on capacity to deliver especially when it comes to job roles

Authority to spend – revise your schedule of delegations and what budget holders can order/spend if cash is tight

HMRC Time to pay – consider using this to ease current cashflow

Don’t let your guard slip – check paperwork make sure you are only paying for valid goods and services, also beware of requests to change payee details which could be fraudulent; it’s a time of stress and tiredness when mistakes can easily be made

Relationships and Big Choices

Stay in touch – sound relationships with your funders, bank and other partners are more important now. It may be harder to contact some but ensure you are open and honest about your position. Examine your banking arrangements and loans, check any covenants – if have breached them or at risk of breaching talk to your contact as soon as you can. You may have money owed by and owed to others who are key to your work. Your preference will be for money to stay in your account, this could damage relationships and you will not want key partners with solvency problems. Understand their financial pressures and come up with arrangements that work for all

Take advice – there may be big choices if you own property or hold a portfolio of investments – sale and lease back of property, liquidating investments, raising loan finance. Make sure you take professional advice, consider both the short and long term need and scenario plan. Follow advice on decision making and board meeting practice from the Charity Commission

To borrow or not – Loan finance is only good if you are confident in your operating model and ability to pay back. It will not solve an underlying structural problem. Loan facilities are taking longer to obtain now so apply as soon as you it is needed

Tools for the job

Think Timing – monthly cashflow forecasts are usual and may still work for many. Consider if you need to switch to a rolling weekly forecast as well as keeping a close daily eye

Reflect and learn – watch how things progress against forecast to aid learning and fine tune future forecasts

Double check the basics – ensure you cross check the starting point of your forecast to actual bank balance. Look beyond the obvious – income variations and staff costs will be clearer; some of your variable costs may have gone down e.g. travel; others up, e.g. data streaming.

Done is better than perfect – the forecast must be right enough. If you are getting bogged down, ask yourself how much difference to the overall position will something you are struggling with make

Added value – alongside the cashflow it will be useful for management and the board to see debtors and creditors – this could just be in total providing an overall sense of liquidity i.e. net current assets = debtors plus cash less creditors. Adding the “run rate” is also useful. This is the number of months’ outgoings you have in the month end cash balance. Showing your cash profile as graphically against previous periods and your target minimum reserves level may be easier for some to interpret

Scenario planning – ask some key “what if” questions and flex your forecast to understand the implications. Typical time horizons might be six months, nine months, and a year ahead.

Wind up – understand how long it would take, in time and money, to carry out an orderly wind up. Think about what redundancy and other costs would be; what notice periods you have for leases etc; where might there be claw back of grants. When reviewing cashflows this will help you understand how much breathing space you have to take action and stabilise

“Sustainability” will be the next in this set of three blogs.

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