Nonprofit finance, plainly

How many months of cash does your nonprofit actually have?

You are opening the bank account before a leadership meeting, trying to decide whether you can say payroll is covered without adding “I think.” The balance looks reassuring, but some of it belongs to a grant, and the next payment has not arrived. You need a clearer answer than your current reports give you, and you should not have to become an accountant to get it.

First, the honest version

Your bank balance tells you how much money is there. It does not tell you how much is available for the bills coming next.

Restricted cash is money a donor or funder has limited to a particular purpose or period. It can pay eligible expenses within those limits, but it is not automatically available for everything else. A grant for a summer program may help cover that program’s staff costs while offering no help with an unrelated expense. Keeping everything in one bank account does not remove those restrictions. Propel Nonprofits explains how donor restrictions affect available funds.

Cash runway means how long your available cash could cover spending. A simple, conservative starting point is:

Months of available cash = cash available for general operations divided by average monthly operating cash expenses.

Operating cash expenses are the regular costs you actually pay, such as wages, rent, insurance, and supplies. Exclude depreciation, the accounting expense that spreads an asset’s cost over its useful life, because recording it does not move cash out of the bank. Nonprofit Finance Fund describes this months-of-cash measure.

This calculation assumes no new money arrives. It measures your cushion, not the exact date you will run out. Restricted funding may cover some upcoming program expenses, and expected payments may arrive before bills come due. Those details belong in a separate calendar of expected receipts and payments.

The immediate risk is a timing gap: a bill becomes due before usable cash arrives. The deeper problem, if it persists, is spending more than reliable funding supports. Knowing which problem you have helps you choose a response that will actually work.

What to do this week

Start with a date.

Choose the most recent month-end for which you have reliable records. Match the cash recorded in your books to the bank statements, accounting for payments and deposits that have not cleared. This process is called reconciliation. If it is incomplete, label your calculation preliminary.

Separate the money by what it can pay for.

List cash available for general operations, cash still subject to donor restrictions, and money the board has set aside. Check grant agreements and remaining balances rather than guessing from deposit descriptions. Do not simply subtract every grant award: some money may not have arrived, and some restrictions may already have been satisfied through eligible spending.

Money set aside by your board is different from donor-restricted money. If using it requires board approval, show it separately until that approval is in place.

Calculate a monthly spending baseline.

Add the past year’s operating cash expenses and divide by twelve. Then check whether that average still reflects the organization you run today. A new position, a closed program, or seasonal services can make the historical average misleading. Note any adjustment so someone else can follow your reasoning.

Divide available operating cash by that monthly amount.

Keep the calculation in a simple spreadsheet with the date, source figures, and assumptions. Repeating the same method each month makes changes easier to interpret.

Next, map the coming weeks.

List expected deposits and payments by week, including payroll, taxes, rent, debt payments, and large purchases. Include restricted receipts only alongside expenses they can support. Mark uncertain receipts clearly and check what happens if they arrive late. An unpaid reimbursement request is not cash in the bank.

Open your next leadership meeting with one sentence.

“As of (date), we have (amount) available for general operations, covering (number) months at current spending; our next cash pressure point is (date or event), and (person) will take (action) by (date).”

If no gap appears, say so and identify the next review date. The point is a shared answer and a clear next step.

The structural fix

Well-built books make this answer repeatable. Bank accounts are reconciled monthly. Grant records show what arrived, what was spent, and what restrictions remain. Unpaid bills and expected receipts are current. One person owns the weekly cash calendar, and leadership receives the same dated cash summary every month.

The free Month-End Close Checklist can help you build that routine. A month-end close is the process of checking and completing the prior month’s financial records.

If producing this answer still requires detective work, the Nonprofit Financial Health Check offers a $500 fixed-fee assessment of ten operational areas. You receive a written report the board can read, and the fee is credited in full toward the first month of any engagement.

You deserve to enter the meeting with a number you can explain and a next step you can manage.

Millennial M&C Co. provides nonprofit accounting and operational support. We prepare and present; your CPA files. Nothing here is tax or legal advice for your specific situation.