Early Warning Signs of Financial Trouble
Unfortunately, it is much easier to get into financial trouble than it is to get out! Usually, the earliest warning is the first time a nonprofit doesn't have the cash to meet payroll. But there are other warning signs too, some more obvious than others.
- Your organization consistently spends more money than it receives in revenue.
- You're not paying payroll taxes in a timely fashion.
- Accounts Payable – the amount you owe others – is mounting up and going unpaid.
- You regularly dip into restricted or deferred funds for today's expenses, coming up short later when the special project is ready to go.
- More than 50 percent of your accounts receivable – the money others owe you – are over 120 days or older.
- You consistently need to get an advance from the United Way or other contract sources to meet today's expenses.
- You have no idea how your organization got into such a financial mess, and you don't know how to begin to pull out of it.
- You don't know how much the organization owes, and you don't know how to find out.
- Lack of money has become the focus and dominant point of conversation at staff and board meetings.
- You feel hopeless or are losing sleep at night because of the financial condition of your organization.
There are no easy answers to these problems. But the quicker you act and the more decisive the action, the greater the likelihood of warding off total disaster, or in the case of an existing loan, warding off default.
The first step in turning around a financially distressed organization is to admit there is a problem. Sometimes the expertise needed to help solve the overriding problem and its symptoms exists within the organization. Board and advisory committee members can often be very helpful in this process. At other times, however, outside technical assistance is needed.
Technical assistance is nothing more than practical, hands-on problem-solving. Your banker or lender can be an excellent source for initial advice, especially because he or she has a vested interest in your organization's success. Other resources at your disposal include your auditor and outside financial consultants.
If you would like to discuss your financial position, contact Brent Swinton, the NRC Technical Manager at 703-752-4331 or via email at bes@daremightythings.com
Source: All the Way to the Bank: Smart Money Management. By Susan Kenny Stevens. Larson Allan, Public Service Group. Second Edition. 2002
If you have trouble reading this e-newsletter due to formatting issues, or visible HTML code, or if you would like to discuss content-related issues, please contact Bill Freeman, NRC e-Newsletter Editor at wjf@daremightythings.com.
Hypertext links and other references to non-CCF products and services are provided for information only and do not constitute endorsement or warranty, express or implied, by the CCF, DHHS, or U.S. Government, as to their suitability, content, usefulness, functioning, completeness, or accuracy.