What’s Really Going on with Your Nonprofit Cash Flow Statement

The fiscal year is about to end. You need to send out annual reports to the board of directors, donors, funders, volunteers, and the public. A stack of financial documents land on the donor’s desk. The photos, colors, and big font might compel them to take it up. Honestly, only the happy faces will be skimmed through, while the tables and numbers will be neglected.

BUT what if your financial reporting not only looks great but is actually meaningful to your stakeholders? What if your cash flow statement could tell a story? A story that mirrors the impact that YOU bring by uplifting communities, bringing peace, and empowering the future.

In the world of nonprofit accounting, there are numerous financial statements that really count to maximize mission impact but are often ignored.

The Most Overlooked Financial Statements in Nonprofit Accounting 

To stay compliant with the Generally Accepted Accounting Principles (GAAP) and legal requirements, you are required to keep these four major financial statements. This enables you to have a better understanding of how your organization is doing.

Why Statement of Cash Flows for Nonprofit Deserves a Closer Look

Your financial story isn’t just about numbers. It paints a picture of your mission, movement, and meaning. In the US, 10% of the workforce represents 2 million nonprofits, making it more important than ever to stand out.  So, your ability to track and interpret cash in and out over a specific period becomes crucial. 

Let’s dive deep into what your numbers are really telling you

What is the Statement of Cash Flows for Nonprofit?

Cash is the protagonist of the epic tale that tells the story of your nonprofit’s financial journey. 

It navigates through the undulating landscape of opportunities, challenges, and transformative movements. 

You might not enjoy reading financial statements, but once you understand what they reveal, it won’t be optional for you, right? 

The Three Pillars of the Statement of Cashflow

Let us explore the types of nonprofit cash flows in detail.

The Daily Mission: Operating Activities 

All your day-to-day operations constitute operating activities.

Cash inflow involves the donations, grants, corporate contributions, and earned income from the sale of merchandise or membership fees.

The cash outflow will include the expenses incurred for conducting fundraisers, and administrative costs such as compensation and other operational bills.

Building the Future Chapters: Investing Activities 

Investing activities include cash movement from long term assets.

Cash outflows involve the purchase of new property, equipment, or fixed assets. Any renovations of existing assets and investing in reserve funds also account for the investing activities.

Whereas cash inflows the sales from fixed assets or interests earned.

Tracking cash flows from investing activities is important to gauge long-term financial health even though the inflows are small, and outflows are infrequent.

Strategic Choices to Shape Mission: Financing Activities 

The movement of cash that involves your nonprofit’s capital structure. The cash outflow includes credit card and loan payments, while the inflow consists of the line of credit and proceeds from loans.

These include loans, credit lines, and financial partnerships.

Endowment Funds: A Unique Aspect

Endowment funds of a nonprofit are the bridge between all three activities. 

Contributions to grow your nonprofit are termed as financing activities; any returns generated are considered as investing activities; and distribution from the fund is considered as cash outflow from investing activities or operating activities based on their utility. 

Step-by-Step Guide to Creating a Statement of Cash Flow for Nonprofits

Step 1: Collect Your Financial Data

You will need:

• Previous and current year balance sheets
• Statement of Activities for the period
• General ledger entries
• Bank statements 

Quick tip: Organize these documents chronologically. An outsourced accounting service will help offload the financial tasks.

Step 2: Choose Your Method

A cash flow statement is prepared in two ways:

• Direct Method: Considers the actual cash receipt and payments
• Indirect Method: Begins with the net income, which is then reconciled with the cash flow using adjustments. 

Most nonprofits use the indirect method since it is an easier approach. 

Step 3: Calculate Cash from Operating Activities 

As you begin with your net income (or the net change in assets), begin with the adjustment for: 

• Depreciation and amortization (add back)
• Changes in Contributions receivable or Grants Receivable
• Changes in accounts payable
• Changes in the prepared expenses
• Changes in accrued liabilities  

Step 4: Calculate Cash from Investing Activities 

Track and document all the cash spent on or received from:

• Purchase or sales of equipment
• Investment transaction
• Acquisition or sales of property 

Step 5: Calculate Cash from Financing Activities  

Record cash from: 

• New loans or debt payments
• Changes in lines of credit
• Capital lease obligations 

Step 6: Determine the Net Cash Increase/Decrease 

Based on all three activities, find your overall cash position.

Step 7: Reconcile with Beginning and Ending Cash Balances 

The final equation should be: 

Beginning Cash Balance + Net Change in Cash = Ending Cash Balance

The December Dilemma 

Around 17-20% of your annual donations are made in the month of December, the last month to resolve for a better world. This phase coincides with the financial year wrap-up of account books.

You and your team are burdened by the fundraisers, donations, as well as managing the records accurately.

A collaboration with experts, or an outsourced accounting firm will help you share your burdens with ease and let you bring a positive change.

An Example for the Story!

The nonprofit cash flow statement example will help you gain a better insight.

Operating Expenses
Total Donations	$75,000
Operational Expenses	$60,000
Net Operating Cash	$15,000
Investing Activities
Strategic Equipment Investment	$10,000
Capacity Building Reserves	$5,000
Net Investing	$5,000
Financing Activities
Planned Credit Line Management	$5,000
Net Financing Cash	$5,000
Cash at the Beginning of the Year	$20,000
Cash at the End of the Year	$35, 500

Remember, healthy finances don't distract from your mission—they enable it. With proper cash flow management and the right financial partners to help navigate year-end donation surges and reporting demands, your nonprofit can ensure it not only survives but thrives in fulfilling its purpose for years to come.