Nonprofits address critical needs in the community. They promote awareness of issues, provide services that might otherwise be unmet, and can organize a community to make a difference. Unfortunately, nonprofits also tend to struggle with financial challenges. Successful nonprofit leaders, use concrete strategies to maximize financial resources.
Here are some suggestions for financial strategies that nonprofit leaders can use:
1. Update your own finance credentials.
Even if you have a financial manager or accountant on hand to provide financial guidance, it pays to beef up your own understanding of the basics. Take a local or online class so that you fully understand the systems and day-to-day bookkeeping functions used. You will gain the knowledge to provide confident oversight and reporting of your organization’s financial status.
2. Know the real cost of fundraising.
Nonprofits are well known for special events fundraising. Your organization’s well-attended annual event may well be an effective way to draw attention to your mission and programming. However, it's essential to compare the funds raised with the actual cost of generating those dollars regarding human resources, equipment, facilities and so on. If the balance is off, finds ways to correct it.
3. New funding opportunities? Look before you leap!
Many nonprofits seek and accept funding sources that aren’t worth the time or expense. Start by determining if the funder's goals are in alignment with your mission. You’ll want to avoid a new funding opportunity that doesn’t offer adequate compensation, requires additional capacity, or alters the mission.
Pay attention to changes in revenue from either donors or other funders. Given that this revenue is vital to your success, it's critical to know if and why a shift occurs. The arrival of a competing organization or changes in local and regional priorities may signal that it’s time to rethink your strategy and take positive steps.
4. Build financial expertise in your board membership.
The nonprofit board is responsible for financial oversight. Make sure that your board membership includes those with knowledge and experience in finance. Then keep them appropriately informed about budgets, sources of funding, how resources are used, and areas of concern.
5. Set aside a reserve fund.
Financial uncertainty is the reality facing most nonprofits. They live with financial difficulty because most of their funding goes directly into programs and services. If possible, a reserve fund can address the cash flow challenges by balancing out the financial lows and the periods of full funding. A simple solution, yet very difficult for many organizations. Any reserve fund should be monitored by policy regarding the amount and purpose. Be aware the potential funders may turn down requests for funding if they think you have "too much" in reserve.
Charles P Myrick CPA is a Washington, DC-based accounting firm that specializes in providing CFO services to nonprofit organizations. We provide nonprofit clients with cash flow and budgeting analysis systems that help analyze spending, and re-balance budgets and/or debts for optimal cash flow. Get in touch today for a complimentary consultation.