Running hand in hand with good budgeting is the need for your business to consider the importance of growing cash reserves.
Having cash that’s available in the business for unexpected financial challenges is part of building risk control into your business model. In an uncertain world, knowing that the adequacy and growth of cash reserves has been considered in your budget plan provides real comfort that you will be able to:
- deal with the emergencies that may come, and
- build capacity toward the successful achievement of your organizational goals, whether those goals takes the form of an increase in profits or market share for your for-profit business, or the expanded and deepened social impact of your nonprofit’s programs.
On the flipside, not putting the right consideration into cash flow can have serious consequences for your reserves.
As an example, one of our nonprofit clients holds a regular, annual event which is its primary fundraiser for the year. A significant amount of board, staff and volunteer time is committed to making this event a success. In the months leading up to the event, cash inflows from increased memberships, sponsorship support, exhibitor and attendee fees, caused cash reserves to swell.— So far, so good— But when the overall expenses for the event were added up, including supplies, speakers and advertising etc., this overhead would subsequently cause the client’s cash reserves to plummet.
How, then, do you resolve this challenge of cash reserves being decimated by ever-increasing fundraising costs?
The answer was to supply the nonprofit with a trend analysis. This showed the client how, at the end of each year, they were ending up in the same cash position. Their cash was being emptied out and there was no profit to drive back into the charity. The organization as a whole was not growing.
With the information in the trend analysis, and our support and guidance as business advisors, the client could intelligently review the value of the event as it related to its social goals.
Running the event is a great fundraising opportunity for this client, but it needed to be planned with an eye on the organization’s financial stability and growth and with its ultimate and primary social purpose in mind. To do that effectively, they needed a proper budget and a cost center review. Armed with those foundational tools, the client could then analyze if their event was aiding the long-term strategy of the organization and furthering its mission to serve a greater good.
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Whether you’re a small business who wants to increase your profits, or you’re an organization wanting to increase your social impact, Checkbox can help you achieve your goals. Get in touch with us to get the expert assistance you need.