You have probably heard of the saying that cash flow is King so that highlights the importance of cash flow.  As a board member or volunteer treasurer you need to ensure that the cash flow of your not for profit organisation is being managed properly.  Manage it poorly and you will risk insolvency along with all its penalties.  The management of your cash flow should bring out your inner Robin Hood with his values and careful management of the cash he was able to liberate.  You are as responsible as he was for making sure the money is going to the right people.

The reason cash flow is so important is due to the timing and the actual transacting of receipts and payments.  This is also why it is important to make the distinction between profits and cash flow.  Your financial reports may show your organisation is profitable and it appears to be healthy when in fact it isn’t.

Cash represents the actual amount you physically have in your bank accounts that you can access to pay your accounts as they fall due.  Profit represents the amounts you have earned but may not have received.  A recent post on Cash vs Accrual Accounting provides some additional information that may be worth referring to for a more detailed explanation.

For the volunteer treasurer, this is one of the most important considerations as the cash flow management not only relates to the payment of accounts or receipt of income, but to how and when the cash is going to be used.  Being able to manage the cash flow is one of the most critical aspects for ensuring the solvency and ongoing viability of your organisation.  The next series of posts focus in more detail managing your cash flow.