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Nonprofit Financial Management: Top Ten Things You Need to Know

| Updated August 17, 2018

Maximize your nonprofit's financial resources with these financial strategies

Your nonprofit addresses critical needs in your community that might otherwise go unmet, promote awareness about important issues, facilitate community building, and are typically staffed by people who have a passion for the cause.

Unfortunately, nonprofits also tend to struggle with financial challenges. Tight budgets may limit the ability to hire specialists to handle the finances or invest in infrastructure. A feeling of financial vulnerability may undermine a sense of stability or job satisfaction and limit the ability of staff members to plan for the long term.

Still, financial gloom and doom isn't inevitable. As a nonprofit leader, you can take concrete steps to maximize financial resources — even if you don't have a strong financial background. Below are some suggestions.

Know the true cost of delivering programs and services

For every dollar or pound you raise, know what it costs to generate it in terms of human resources, equipment, facilities and so on. Then compare those numbers to your revenue streams. If the balance is off, brainstorm ways to correct it.

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Become proficient in key accounting and financial functions

If you don't have an expert on hand to provide financial guidance, learn some basics. Take a local or online class or, if your budget allows, bring in a financial manager or experienced nonprofit accountant on a short-term, part-time basis to help get systems and day-to-day bookkeeping staff into place. The more you learn about what makes your organization tick financially, the better you'll be able to deliver on its mission.

Don't consider growth a given

Even the best idea for a new program or service isn't a good idea if you can't afford it, so be practical when weighing the pros and cons of new undertakings. If it costs too much to implement and deliver, shelve the idea — at least for the time being.

Turn your finance guru into a thought partner

If your nonprofit has a finance manager or finance staff, don't keep them relegated to traditional roles such as creating budgets and tracking spending. Take advantage of their financial acumen and ask their insights on issues relevant to delivering on your organization's mission — technology, growth opportunities, infrastructure investments and more.

Stay on top of changes affecting funding

Given that revenue from donors and other funders is vital to your success, it's critical to know if and why a shift occurs. It could be the arrival of a competing organization on the scene, a change in local, regional or national mood, and so on. Getting the facts will help you rethink your strategy and take positive steps.

Evaluate new funding opportunities thoroughly

If an individual, foundation or other entity wants to give you money, determine if the funder's goals are in alignment with your mission. Then, find out if it's worth the time or expense. Many nonprofits accept funding sources that compensate them inadequately, overtax their capacity to deliver or distract them from their competitive advantage. Bottom line: it's okay to say no.

Accept only the in-kind donations you want or need

In keeping with the above, just because someone wants to give you something — a computer system, furniture, the use of a facility or free services — doesn't mean you have to accept it. Make sure the donation is the right fit for your organization.

Keep board members appropriately informed

Because the board is responsible for financial oversight, it's critical to keep them informed about how resources are used, what you've achieved and areas of concern, if any. Work together to determine the right balance of information — not too much and not too little.

Recruit board members who have financial experience

If you don't have anyone with financial experience on your board, consider recruiting someone who does. It's a smart way to round out the board recommendations you receive as well as facilitate fiscal well-being.

Maintain a reserve fund

Most nonprofits live with financial uncertainty because they put the vast majority of money into programs and services. Simple though it may sound, having a reserve fund can help you make it through phases of decreased support and economic ups and downs. Remember, however, that you'll need to be clear about how much you're holding in reserve and why. Potential funders may turn down requests for funding if they think you have "too much" in reserve.

MissionBox editorial content is offered as guidance only, and is not meant, nor should it be construed as, a replacement for certified, professional expertise.

References

Forbes: Five tips to better manage nonprofit finances by Neela Pal (2015)

The Chronicle of Philanthropy: How small nonprofits can improve their fiscal health by Anjali Deshmukh and Angela Francis (2013)

Nonprofit Quarterly: An executive director's primer on financial management by David Renz and Rhonda Gerke (2001)

The Charity Commission: Charity financial reserves (2013)

The Guardian: How much money should your charity hold in reserve? by Saba Salman (2016)

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Seasoned writer covering a spectrum of industries, including nonprofit, financial services, health care, insurance and technology