This month we continue looking at effectively monitoring the financial success of your organization. Monitoring the financial performance of the organization, as we discussed last month, is necessary but should also include forecasting or predicting the future. This is especially important given the challenges that are presented with nonprofit accounting rules and revenue recognition, an area that was also discussed in depth last month. Preparation and review of some form of projection report is imperative to the assurance that your organization is on the right path.
Many nonprofits struggle with the accrual basis of accounting and the requirements of revenue recognition. To combat this struggle, we have worked with nonprofits to develop a report that assists in “explaining” what the future might look like on a cash basis. A report we generally use is presented as a Revenue and Expense report with adjustments made for Accounts Receivables and Accounts Payables to get to the projected cash balance of the organization. Organizations can use this report by updating each month with actual results as they occur. The remaining months are entered as they were budgeted. This is a tool that can also be used to make updates to what was budgeted in future months. If you become aware of changes to funding streams that were budgeted or personnel changes that inevitably occur, then you can update those amounts in a document such as this to project how performance will be in remaining months.
Check back next month, as we continue our series on A Guide to Financial Leadership!