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The Cash Flow Solution: The Nonprofit Board Member's Guide to Financial Success

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From time to time a book makes so much sense you wonder why someone did not write it a long time ago. Richard and Anna Linzer's book "The Cash Flow Solution" is such a book. The principles are as fundamental and rock-solid as they are innovative. The Linzers' understanding of the assumptions that get in the way of effective money management by nonprofit managers and board members is grounded in fact and experience. Applying their suggestions could mean the survival of many troubled organizations. More importantly, the Linzers' insight into the use and abuse of endowments could lead to substantial improvements of nonprofits to come immediately closer to meeting their potential to deal with the needs of our society.

First the Linzers' demonstrate the inappropriateness and dangers of traditional financial reports where fund balances are based on the difference of assets and liabilities. They show conclusively that this way of thinking not only makes no sense for a nonprofit organization, but in fact can lead to destructive choices. Then they make an irrefutable case for the value of cash flow reports and projections. They put it succinctly, "the fiscal cycle for a nonprofit organization is only about cash flow." While assets can make or break a for-profit organization, "The Cash Flow Solution" demonstrates that, in a time of need, assets are often worthless for a nonprofit organization. Not only do they make the case for the functionalism of the cash flow solution, they also provide simple, easy to comprehend, step-by-step methods to transpose less than meaningful asset/liability fund accounting to a cash flow system.

The Linzers make a strong and reasoned case for using a line-of-credit as a relatively cheap source of cash for seasonal and/or temporary needs. Then they provide a detailed fail-proof means of obtaining a line of credit from banks, most of whom are unnaturally afraid to provide loans to nonprofits.

The most important and the most innovative insight in the book is the need for nonprofits to kick the habit of endowment and capital campaigns. The authors assert that these funds are the scourge of nonprofits, giving organizations a false sense of security, leading to mistakes in fiscal decision making, doing nothing to assure the future of the organizations they are meant to protect. In addition, by taking large chunks of funds away from services, the Linzers point out that massive capital contribution campaigns by large institutions crowd out donations to smaller organizations that also play important roles in the community. The crippling or loss of these small organizations is part of the price we pay for endowment and capital campaigns. If the world will listen, the Linzers' message could do more to make nonprofits better meet their mission in our society than any single act.

Every director of a nonprofit in America must read this book and it should be required for their board members, as well. In addition, "The Cash Flow Solution" should appear on the syllabus of every college nonprofit management program in the country.

The authors challenge the dreams of many non-profits -- cash reserves and endowment -- and focus on the nonprofit as being a truly cash flow entity. They describe the operations of nonprofits versus the business sector and provide some good insights helpful for board members.