Essential Guide to Statement of Cash Flows for Nonprofits

The Statement of Cash Flows is a financial report showing how cash moves in and out of a nonprofit over a set time—monthly, quarterly, or annually. It’s one of the four essential financial statements required by Generally Accepted Accounting Principles (GAAP) and international financial reporting standards, guaranteeing transparency and compliance for audits and board oversight. Whereas the income statement and balance sheet focus on accruals and assets, the cash flow statement zeros in on actual cash: what’s available right now to fund the mission, pay bills, and invest in growth.

Why Boards and Teams Care

• Reveals liquidity—Can we pay staff, cover bills, and tackle new projects?

• Prevents surprises—Flags funding gaps or temporary crunches before mission is impacted.

• Strengthens stewardship—Shows donors, grantors, and regulators how funds are managed.

• Enables strategy—Helps forecast money needs and support sound decision-making for every program and initiative.

Step-by-Step: How To Prepare and Read

1. Gather data: Pull transactions from accounting software or bank statements.

2. Sort activities: Assign every transaction to “Operating,” “Investing,” or “Financing.”

3. Add up inflows and outflows: Net each section to see which is generating or draining cash.

4. Reconcile with the balance sheet: Ending cash position on the statement of cash flows should match the one on your balance sheet.

5. Analyze trends: Board, finance committee, or staff should discuss what the data means for ongoing programs and big decisions.

Building and Reading the Statement

Operating, Investing, Financing—What’s Inside?

Operating Activities

Investing Activities

Financing Activities

Cash Flow Table Blueprint

This structure lets boards and staff instantly spot trouble (“Cash outflows surpassed inflows in February—let’s dig into why!”) and see trends over time.

Applications for Strategic Management

Boards and nonprofit teams use the cash flow statement for:

• Liquidity planning: Forecasts whether enough cash is on hand to fund programs, cover payroll, and pay vendors—especially surrounding seasonal donation spikes or grant payments.

• Budgeting: Cash flow analysis helps project gaps and surpluses, feeding into more accurate budget creation and strategic planning.

• Investment and debt management: Reveals whether investments are supporting growth or draining resources, and whether debt is being responsibly repaid.

• Audit and compliance: Maintains regulatory compliance and helps with annual audits by providing a clear, traceable statement of actual cash movement.

• Stakeholder trust: Boosts transparency for donors, grantors, and the board by clearly showing stewardship of every dollar.

Common Mistakes—and How to Avoid Them

A Deeper Dive: Operating, Investing, Financing

Operating Activities

• Inflows: Donations, grants, government contracts, program fees, event revenue, accounts receivable payments

• Outflows: Payroll, rent, utilities, insurance, direct program costs, accounts payable, inventory purchases

• Example: “The organization receives a $25,000 grant and spends $20,000 on program supplies, reporting a net operating cash inflow of $5,000 for the month.”

Investing Activities

• Inflows: Selling assets, liquidating investments, interest or dividends earned

• Outflows: Purchasing new equipment, buying property, making new investments, capital improvements

• Example: “Purchase of a delivery van using reserve funds results in a $15,000 investing outflow, but selling old computers brings $2,500 in investing inflow.”

Financing Activities

• Inflows: Loan proceeds, endowment contributions, capital campaign gifts

• Outflows: Paying down loans, lease repayments, debt service

• Example: “The board approves a $40,000 line of credit; $5,000 is repaid the next quarter, resulting in net positive financing cash flow initially but later declining.”

Direct vs. Indirect Method (Quick Table)

Boards and executive directors can request both methods for clarity during strategic planning or financial committee meetings.

Board’s Cash Flow Review Checklist

• Are all inflows and outflows accurately recorded and tagged by grant, program, or fund?

• Are trends seasonally mapped, revealing anticipated shortfalls or surpluses?

• Is every negative cash flow period explained and addressed in budgeting?

• Does the final cash balance align precisely with accounting software and bank records?

• Can each board member understand which activities (operating, investing, financing) drive or drain liquidity?

• Are controls and approvals in place for timely cash flow statement review and audit readiness?

Real-World Board Conversation Starters

• “Operating outflows were higher than expected in Q2—is this a seasonal effect or should we look into unexpected expenses?”

• “Can we segment cash flows to better track grant vs. unrestricted program money?”

• “Our largest cash investing outflow was a property upgrade—was that timed optimally?”

• “Do we need a contingency plan if we see negative cash flow multiple months running?”

Holdings for Good: Seamless Cash Flow Management

Holdings provides easy-to-use digital segregation tools for nonprofits, enabling instant tagging, segmenting, and reporting of every transaction—by program, grant, or fund. Modern features include:

• Zero-fee banking with 2% return on all balances, instantly boosting available liquidity.

• Virtual accounts for effortless fund segmentation, enabling compliance and board transparency without spreadsheet headaches.

• Virtual and debit card controls to manage team and volunteer spending safely and simply—no more reimbursements or manual sorting.

• Integrated expense management, bookkeeping, and sync/export direct to leading accounting systems (QuickBooks, Sage Intacct, and more), ensuring statements are always audit-ready and actionable for leadership.This means any nonprofit—from grassroots organizations with a handful of programs to larger CFO-led teams—can see, dissect, and use their cash flow statement to drive better outcomes, protect their mission, and boost efficiency.

Share-Worthy Takeaways

• The cash flow statement is a nonprofit’s real-time financial health pulse—not just “another report,” but a strategic tool for everyone.

• Visual tables and regular reviews help boards and teams get ahead of crises, fuel program growth, and make every dollar work harder.

• Modern platforms like Holdings make tracking, segmenting, and reporting frictionless, grounded in compliance and best practice—no matter how big or small the organization.

Use and share this resource at your next board meeting, team training, or strategic workshop to demystify cash flow management—putting every nonprofit a step closer to mission confidence and financial clarity.