Question

If there is a shortage in one or more months, what could a nonprofit organization do to deal with the shortfall (give some recommendations for how to obtain or free up the needed funds, bearing in mind that your recommendations have to be done in the middle of the year and must have an effect on cash inflows or cash outflows within the next several months?

Answer 1

It is quite common for a non-profit organization to have a shortage of funds during certain months. During such times, the organization can tap into the reserve funds to cover for the shortage of the funds. Therefore it is important for any non-profit organization to set up a reserve account and keep adding money whenever there is surplus cash.

The reserve account could be a short term fixed deposit account. This will earn some interest as well in the short term and can be withdrawn whenever required.

If the shortage occurs in the middle of the year, it becomes quite difficult to raise funds from the donors. In such a situation the reserve account comes in handy. The organization must look into what caused the shortage of cash and must revise budget allocation if the need be.