Financial Management for Nonprofit Organizations, 3rd Edition

APPENDIX 8ACASE STUDY: THE CASH CRISIS AT THE CHILDREN'S TREATMENT CENTER^*

Loan payments, government contracts, United Way money – sometimes running the nonprofit Honolulu Children's Treatment Center was nothing but one big headache, thought Ron Williams, executive director of the Center. So many children needed help, and yet more and more time seemed to be spent on a growing number of financial problems. Ron saw that there wasn't enough cash to pay for the services provided by the parent agency, and payments were several years overdue. The temporary bank loan of $100,000 would need renewal soon and interest rates were moving up. The bank was unhappy that a so-called temporary loan had to be refinanced again, and was not inclined to renew the loan. The United Way would reduce its support dollar for dollar if the center had an operating surplus of more than $5,000, but without an operating surplus it might not be possible to take care of the overdue payables and the bank loan. Actually, an operating surplus was unlikely to occur. The forecast for 2005/06 was a deficit of $19,000. And if that wasn't enough, today's mail brought yet another letter from the Center's board of directors in California that said “if you just managed things properly, you should be able to pay off the bank loan, eliminate the operating deficit, and get current on payables.” The letter ended with the request: “Please explain.” The March annual meeting with the board of directors was coming up soon and ...