Nonprofits are created to solve problems or meet needs that for-profits are not addressing. Yet, nonprofits will not accomplish their mission unless they can generate revenue more than expenses from grants, donations, contracts, and fees. The truth is that it can be difficult to generate more revenue than expenses in the nonprofit world. In almost all cases, we cannot total up our costs, add a slice for profit and new investment, and charge it back to a member. In fact, for most nonprofits, our programs are an expense, not a sustainable revenue source.
Adding to the challenge of our business model is that there are many reporting requirements and special rules attached to money in the nonprofit sector. There are special tax rules at the federal, state, and local level and very specific accounting rules to follow.
During my time with Nonprofit Resources, I have learned that all nonprofits have different needs, cultures, and dynamics. However, they also have the same basic needs for financial stability and best practices.
Develop Clear Policies and Procedures
Not only can fraud be a concern for nonprofits, but accidental mismanagement of funds due to lack of transparency or failure to set clear expectations and goals. Developing association-specific standards and procedures ensures all staff and volunteers have guidelines in place to make decisions that support the association’s mission and strategic goals. It also provides clarity as to whom is responsible for “what” for board roll over and succession planning.
Create an Inclusive and Realistic Budget
All organizations need to set a yearly budget with realistic numbers for both revenue and expenses. Everyone that works with nonprofits breath a collective sigh of relief when the bottom line is in the black, but as we also know, that is not a realistic expectation for every calendar year. There are many outside influences that can affect your bottom line. (Who anticipated the events of 2020?) This leads to my next point. Organizations must be able to adapt and accept changes as they present themselves. The Board should not only be aware of the budget numbers on a spreadsheet but be offered a detailed understanding of the budget and what can affect the outcome.
Board Understanding of Financials and Reporting
Your financial reports tell the story and history of your organization to the world. The Board should not only be aware of the budget numbers on a spreadsheet but be offered a detailed understanding of the budget and what can affect the outcome. When your board has a clear understanding of the financial position it gives them tools to build strategic initiatives that support your org’s mission. By reviewing the monthly balance sheet, profit, and loss statement, and approved vendors consistently you’re creating a solid foundation to build from.
Strong Strategic Planning
Our founder and President, Kristin Bennett, recently facilitated a two-day strategic planning session with an association that aspires to grow and support its mission with intention. This is a great reminder that association Boards and staff need to be agile and accepting of change but also mindful and intentional of the mission. One of our clients (National Human Resources Association) does a great job of asking volunteers about their “why”. Why did I choose to volunteer? Why am I involved with this org? Under the pressures of balancing a budget, planning to grow membership, and working to cultivate meaningful program content a volunteer’s “why” can get lost or forgotten. A yearly strategic planning session with a facilitator is essential to bring everyone back to the center and guide your association into the future. To discover more about why Strategic Planning is important to your nonprofit watch our 501(c)ast titled Nonprofit Organizational Strategy with Lester Olmstead-Rose from LaPiana Consulting.
Outside Periodic Financial Audit
Audits are financial reviews by a certified public accountant who examines financial records and business transactions and expresses an opinion about the truthfulness and accuracy of financial statements. Audits are time-consuming and expensive, typically ranging from $10,000 to $20,000 depending on a nonprofit’s size, according to the National Council of Nonprofits. If your association is considering an audit but is not in the financial position to pay these rates, reach out to Nonprofit Resources. We can help connect you with affordable nonprofit financial experts. The National Council of Nonprofits currently recommends a three-to-five-year audit cycle for medium to small associations, and yearly for large organizations or those with federal contracts.
To learn more about financial planning and best practices give Nonprofit resources a call! Let us show you how we can assist you!