Nonprofit Blog

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Wednesday, June 28, 2017

Telling Your Liquidity Story

Posted by Stacie Kowalczyk

Donors and grant makers rely heavily on financial statements when making endowment and contribution decisions. But until now, financial statement users were unable to assess a nonprofit’s liquidity unless they posed follow-up questions directly to the nonprofit. With the new nonprofit reporting requirements soon to take effect, nonprofit leaders have the opportunity to add more detail to their financial statements, by providing information about cash flow and telling their liquidity story.

The new nonprofit reporting model provides transparency about liquidity by requiring additional disclosures. These disclosures are both quantitative and qualitative in nature: They describe which assets are liquid and available to meet cash needs, and they also describe how the assets will meet cash needs.

Why Tell Your Liquidity Story?

Too often, nonprofits lose potential contributions simply by being an “unknown” to the big players. Your nonprofit may have a history of managing its liquidity wisely, but potential donors may not have been able to recognize that. The new requirement permits potential contributors to see your true value just by glancing at your financials. Being transparent about your liquidity position allows grant makers and donors to fully understand your nonprofit’s potential.

The new requirements also empower nonprofit boards to make better informed decisions. If your organization has had cash flow challenges in the past, preparing these new disclosures will help you discuss potential changes to operations that can be strategic in the long run, as opposed to continuing to operate under the status quo, especially in these challenging and changing times.

Not understanding your organization’s liquidity position can have negative long-term effects on operations and growth of programs. So approach this new reporting model as an opportunity, rather than an obligation. It can provide insight that will help management and the board of the organization address issues and highlight the successes you want donors to see.

For help implementing the new FASB standards or addressing liquidity concerns, contact your Armanino nonprofit accounting team.

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