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Cash management --- more bang for your buck
February 27, 1995; Canadian FundRaiser
How can charities put their money to work for the short and the long term? By using practical cash management strategies, says Dan Wingrowich of the Glen Ardith Frazer Corp. Speaking at a financial planning workshop presented by the Source Group, he offered these five tips for improved financial performance:

Plan ahead. Does the budget incorporate strategic cash management? Can timing of cash disbursements be determined in advance? If you won't be needing some funds immediately, the money can be put to work for higher return. Remember that investment yield normally increases with maturity term.

Minimize bank account "float". Remember that banks are in the "spread" business --- they'll benefit if you don't plan or manager effectively.

Whenever possible, maximize use of high-quality "marketable" investment vehicles. Your organization's investment returns will benefit.

Invest operating cash surplus, if any. Longer maturity instruments usually yield higher returns. Could you allocate surplus to an endowment or investment portfolio to take advantage of this?

Process and operating discipline is vital. Does your organization have a "cash management policy"? Who's responsible for managing cash flow currently? If you don't have a policy, develop one. Make sure that guidelines are appropriate and clear, and make someone accountable for implementation.

Staggered T-bill strategy
Evidence shows that three-month T-bills always yield more than a daily interest savings account at the bank. This return advantage is normally very stable and quite significant (about 1 per cent higher over the past five years, on average). Rather than leaving all of your organization's operating cash in a bank account, a little advance planning and some simple standing instructions at the bank can help significantly.
For example, in January determine what portion of your operating cash on hand will not be needed for at least three months. Divide this sum into three equal parts. Then purchase a three-month T-bill with a third of your surplus cash in January. If you don't have an investment dealer, instruct your bank to do this for you. Do the same with the next third in February. In March, buy the final three-month T-bill with the last third of your surplus cash.
Your surplus cash is now staggered out in T-bills so that a third matures each month thereafter. Then, if your budgeting exercise indicates that such funds are likely to remain surplus, issue a standing instruction to your investment dealer, or the bank, to reinvest each maturing T-bill in a new three-month T-bill on each maturity date.
An extra $1,000 per year
This is easy to implement, and it ensures that you'll earn the yield premium over the bank's daily interest rate without your having to do anything more --- and you don't have to forecast what interest rates will do. If your organization has an ongoing "float" of $100,000, this simple planning exercise is worth an extra $1,000 each year.
Longer-term investments require expertise.
In the case of endowment and long-term investment funds, Wingrowich reiterated that, with the permission of the Finance Minister, nonprofits may be able to set aside any funds clearly designated by donors as being for long-term use. This may make it possible to create a longer-term investment portfolio.
But how do you manage those funds? Are the necessary levels of expertise and resources available internally? If not, then outside professionals may be engaged. Your organization may need assistance in making a suitable choice, and once selected, the managers must receive ongoing and appropriate instructions. This means developing a formal investment policy to ensure a proper balance between risk and return, in line with what is appropriate for your organization and its circumstances.
Many issues affect investment policy
You'll need to consider many issues if the investment policy is to serve your organization well. Wingrowich recommended that the following matters be considered contents: objectives, risk levels, risk vs. return, capital market/economic outlook, asset allocation, time horizon, judging investment manager performance, prohibition on certain investments, diversification and policy review.
Creating a policy is a complex process involving the senior ranks of your organization's executive or board. However, the process does ensure that you'll be ready to implement an investment program for the endowment fund or for your long-term investments. For a complimentary two-page guide, Investment Policy Development, call Dan Wingrowich at the Glen Ardith Frazer Corp., (416) 359-2780, ext. 825.