By Andrew Brock, CPA, Manager at Blue & Co.

How often do you find yourself facing more questions than answers when it comes to making operational decisions for your organization and what the future bottom-line impact of those decisions might entail?

Right now, some of the most relevant trends and decisions for organizations include:

• Impact of inflation and rising costs on the organization’s future bottom line
• Rising pressures of the labor market and offering competitive pay and benefits to attract and retain employees
• Understanding the trend of current donor level engagement and giving in an environment where donors are facing the impact of inflation and rising costs as well

These hot topic trends are just a minor subset of the hundreds of financial questions out there that organizations are navigating every week, day, hour… so where do we begin in answering some of these questions?

There are three helpful models to consider that can be implemented today at no cost to the organization. These models can help an organization better understand their current state, where they are trending, and how making different decisions today will impact future operational bottom lines.

As such, these models include the following:

• Data mining current general ledger activity
• Calculating trailing 12-month statement of activity reports
• Calculating cash flow projection reports

Data Mining Current General Ledger Activity

Data mining, at its core, is using organizational data (in this case data from the general ledger) and sorting, extracting, or manipulating it in such a way that information is more transparent to management. Great examples for uses of this information would be understanding total annual amounts the organization is spending with each of its vendors or finding annual subscriptions the organization is paying for that are not needed or seldomly used. The main goal in this model is that the organization is able to find costs that have risen to a level that needs addressed or find costs that can just be removed all together.

Trailing 12-Month Statement of Activity Reports

Trailing 12-month reports calculate a trend line or an average over the 12-month period and compare current performance against that average. In performing this calculation, management will want to ensure that they are using at least 12 individual months and can certainly extend beyond just 12-months if they want multiple periods of trailing 12-month data.

This calculation can assist management in identifying any revenue or expense activity that is over or under performing based on historical activity and understand what is causing this variation. It is a great method used during inflationary periods to identify exact expense areas that are being impacted the most.

Cash Flow Projection Reports

Calculating cash flow projection reports incorporate assumptions and provide the benefit of showing the impact certain decisions will have on the future cash position of the organization. This calculation is simply performed by taking the beginning of the month cash balance and adding or subtracting the budgeted cash basis profit and loss by month for the remaining period under budget that has not yet occurred; progressing the cash balance by this change every month in the future periods.

Management is then able to estimate certain decisions by changing expenses or revenue sources for those future months which would then add or subtract to the budgeted profit and loss for the period and as such update the cash flow projections. This model was a great resource to many organizations at the onset of the COVID-19 pandemic. It allowed organizations to understand how long their current cash levels could support them if they did not receive any more income for the remainder of that first year.

These three models are all designed to help the organization make more informed decisions as basic, standalone models, but also have a place and purpose in working together in making decisions. Data mining helps organizations understand their current status, trailing 12-month analysis helps organizations understand where they are trending, and cash flow projections give a more robust prediction of what the operational cash flow levels will be should certain management decisions be made.

As such, having the information from all three models concurrently will help the organization make the best formed decisions to ensure that they are protecting the viability and sustainability of the future operations.

Please reach out to your local Blue & Co. advisor with any questions regarding these models.