Do you know how much money you spent last month? What about your household’s net income? If you don’t, you aren’t alone—about 65% of Americans aren’t aware of their monthly spending amounts, and 84% of those who have a monthly budget report exceeding it.
While it’s important for individuals to understand their expenses and income for personal financial stability, it’s even more critical for nonprofits to know where their money is going and coming from. Effective financial management can make or break your ability to further your organization’s mission, and tracking cash flow is a foundational part of an effective management strategy.
Fortunately, there is an accounting tool designed to help your nonprofit with this process: the statement of cash flows. In this guide, we’ll cover everything you need to know about this report, including:
Let’s get started by defining what the nonprofit statement of cash flows is and how it fits into the bigger picture of financial reporting.
The nonprofit statement of cash flows is a financial report that shows how cash moves in and out of your organization. It breaks down all of your nonprofit’s transactions into the categories of operating, investing, and financing activities.
Similarly to other financial statements, it summarizes the data stored in your organization’s accounting system so it’s easier to interpret. Most nonprofits compile this report on a monthly basis, since it helps keep their spending and revenue generation aligned with their annual operating budgets.
The statement of cash flows is one of the four core financial statements your organization is required to compile to maintain compliance with the Generally Accepted Accounting Principles (GAAP) and legal requirements for nonprofits. The other three statements are the:
Most organizations compile the three reports above annually rather than monthly like the statement of cash flows. Additionally, the statement of cash flows is used by for-profit and nonprofit organizations alike, all of which refer to it using similar terminology (statement of cash flows, cash flow statement, or cash flow report).
Set guidelines for creating financial statements with our Nonprofit Financial Reporting Policy Template.
As mentioned previously, the nonprofit statement of cash flows is divided into three main sections: cash flows from operating, investing, and financing activities. Let’s look at each of these elements in more detail.
This section describes the cash your nonprofit brings in and spends on the majority of its day-to-day work. Cash outflows from operating activities include:
On the flip side, cash inflows from operating activities include most of your nonprofit’s major revenue sources, such as:
In-kind donations and sponsorships typically aren’t noted on the statement of cash flows. This is because gifts of goods, services, and immaterial assets result in a net zero gain in cash for your organization.
This category includes all cash movement related to your nonprofit’s long-term assets, such as property, equipment, and investments. Cash outflows from investing activities include:
Cash inflows from investing activities most often include:
Investments and their returns often create relatively small cash flows compared to your nonprofit’s other revenue streams, while changes in fixed assets are typically large but infrequent. However, it’s still important to track your organization’s cash flows from investing activities since they affect its long-term financial health and ability to grow.
This section describes cash movement related to your organization’s capital structure, most of which concerns debt. Examples of cash outflows from financing activities include credit card and loan payments, while cash inflows from financing activities might look like proceeds from loans made to other organizations and lines of credit.
Some contributions designated for growing your nonprofit’s capital may also fall under your cash inflows from financing activities, particularly endowment funds. However, endowments often bridge all three categories of cash flows. The returns they generate are considered cash inflows from investing activities. Distributions from them are categorized as cash outflows from investing activities or operating activities, depending on whether you spend them on assets or programs.
Your nonprofit’s statement of cash flows provides a close-up analysis of its spending and fundraising habits. However, this report also has other applications in the bigger picture of accounting. Here are a few of the most common applications:
Pro tip: Working with a nonprofit accountant (like the experts at Jitasa) is the best way to ensure you’re understanding and leveraging your organization’s cash flow statement in the best possible ways for your unique situation.
To help you visualize what your nonprofit’s statement of cash flows might look like, we’ve included a basic example here:
Since this report will look slightly different for every organization, reaching out to an accountant is also the best way to ensure your nonprofit has accurate, comprehensive cash flow statements to reference. Our team at Jitasa has worked with more than 1,500 nonprofits in all verticals across the United States, so we have the experience and knowledge to help your organization create, analyze, and apply its financial statements to achieve its goals.
The nonprofit statement of cash flows is an integral accounting report that your organization should take great care to compile and leverage in your day-to-day work. Use the guidelines and tips above as a starting point, and don’t hesitate to contact an accountant if you have questions or want to take your report creation and analysis to the next level.
For more information on nonprofit financial reporting, check out these resources:
Accurately track and analyze your nonprofit’s cash flows by partnering with the accountants at Jitasa.
