Monday July 19, 2021
Hey, it's Chyla Graham. Welcome to another episode of The Nonprofit Ace Podcast. I am a licensed CPA so as a certified public accountant I only work with nonprofits because I want more nonprofit leaders to feel comfortable talking about money, asking questions and talking about what they need.
This week, I want to talk about what you need to know. So on last week's episode of the podcast, I talked about what people want to know when reading the financial statements. What you want to know and what you need to know aren't necessarily the same. So last week, I said people want to know how much cash they have and how money is coming in and out but what you need to know is the context behind those numbers.
So you have, let's say you know, you have $50,000 of cash on hand, you need context so you know if that's good or bad. So context, meaning how much cash does it take to operate each month? So how many months on cash do you have based off of that number? Another way to think of, Hey, we have cash. What's the context to that? Is any of that cash restricted for any purposes? So are we holding that money because a donor said he could only spend for x at that.
So I remember when I used to audit, there was a school I went to, and they had restricted money, for a gazebo $5,000 somebody gave for a gazebo that clearly cost more than $5,000 to build and they were never going to use it. And so thinking through like we have money that we can't use, how is that helpful? So that's what I mean about the context around your cash.
The other place that context is going to matter is when you're thinking about that money in and out. So if you raise $100,000, is that good or bad? You won't know, again, without context. So the places you can look for context is your budget versus actuals. So what did you plan on bringing in this year? or What did you plan on spending this year? If you know what you planned, you can see Oh, that number is good or bad in relationship to what we were intending to happen this year.
Another place you can look at for context, because I know some people don't necessarily always do a budget is how did we do last year? So hey, if we're thinking about July versus July, how are we faring? Is this typical? Is this our typical cycle? If your organization is brand new, and you're like, ah, I don't know, we don't actually have a budget we don't have a previous year to consider. Well, what type of context does that take you to?
Alright, so if you haven't heard me talk about that, this is it. So other places that can take you to is looking at a similar organization. So maybe saying, hey, there's another organization in our area that serves the same community in a similar capacity. Maybe you should look at their IRS Form 990, which you can find on the internet, the IRS will let you download it. GuideStar is another website where you can get that information. If you look up their 990. Maybe you want to say okay, I don't really know their true cycle but if I divided this by 12, what does this tell me about our organization?
And one thing I do want to say about if you're going to use other organizations 990 is consider the age of the organization, certain things are going to be higher than yours. And maybe their fundraising income is going to be higher than yours, because they have more experience than you. They've been practicing and fine tuning the way they're doing this. So, you know, sprinkles themselves on that 990 as you read it and try to see how it could apply to you.
So the other thing you want to think about in terms of context is what's coming up. So it's nice to know, hey, based off of how we typically spend, we have about this much money on hand. But let's think about the future. You want to stay a little ahead to say, Oh, we know these major events are happening or these major expenses are happening. And so this is how it's gonna affect our cash on hand. Because that context is going to help inform the decision making. Can we hire a new employee? Yes, because we know we're gonna have the cash to cover it or no, not until December because we won't get our next round of funding until then.
So that's why you need to think about the context and not just, oh, this is the one question I want to answer. Because without contexts those answers don't really help inform any real decisions. So, I love to know what other things you use to give context to your financial statements as you go along. All right. This has been another episode of The Nonprofit Ace Podcast. I've been your host, Chyla Graham. Thanks for listening to another episode of The Nonprofit Ace Podcast. Until next time, bye.