7 Keys to Nonprofit Financial ManagementMar 30, 2023
Nonprofit financial management is key to making your organization grow and thrive. Having a strong, well-conceived financial management plan in place should be a goal of every nonprofit seeking long-term success in pursuit of its goals.
In this article, we will examine what we believe to be the 7 essentials to consider when optimizing your nonprofit’s financial management.
7 Nonprofit Financial Management Essentials
1. Adopt a Sound Accounting System
Having an accounting system you can rely on is the most important piece of financial management your nonprofit can implement; it is the basis on which all of your financial decisions will be evaluated.
The accounting system you choose needs to be able to track revenue and expenses timely and with accuracy. Likewise, the system you choose should fit your organization and its needs, as well as be user-friendly.
You’ll also need to:
- Include a chart of accounts
- Track by class and job
- Optimize the format of financial statements
- Automate your system
- Budget for a surplus
If you would like to read more about how you can go about these upgrades, you may find this article helpful.
It is important to remember that you will need to check your accounting system regularly for updates to ensure ongoing accuracy.
2. Monitor Cash Flow
For many nonprofits, the key to the organization’s survival is its cash flow and the ability to monitor it consistently. It is imperative to monitor cash flow to ensure there are sufficient funds to cover day-to-day operating costs and to meet financial obligations.
Your nonprofit statement of cash flows will be an excellent place to look in order to monitor operating, investing, and financing activities. Utilizing the insights provided by your statement of cash flows can set you up for both success and peace of mind knowing that your organization is prepared financially for whatever the future may bring.
If you would like to read more about your nonprofit statement of cash flows, that can be found here.
3. Develop a Budget
Having an organizational budget in place helps keep your nonprofit stable, even in tumultuous times. Your budget should include input from staff, board members, and stakeholders in order to create something that is fully optimized for you.
Your budget should also include a plan for meeting the organization’s financial goals and serve as a timeline for when resources will be used. Furthermore, it will act as a benchmark for success as well.
Be sure to review and update your budget regularly in order to see the best results. Take a look at this article for more information on how to go about creating the best organizational budget for your nonprofit.
4. Monitor Financial Performance
Regularly monitoring financial performance is a must for any organization, but this is especially true for nonprofits.
Due to the nature of nonprofits, sources of consistent income can be tough to find at times. In this article, we’ve already explored a few ways to alleviate that stress. However, it is also important to regularly review your financial statements as part of this process. Taking the time to analyze your financial statements will:
- Let you monitor performance
- Identify trends
- Ensure your organization is meeting its goals
5. Use Technology
Incorporating technology is another great way to take your nonprofit’s financial management to the next level.
In addition to accounting software, there are many other software solutions out there - some of them are even free. These software solutions can offer donor management and donation software, marketing tools, and even project management software.
Utilizing technology solutions can help you streamline your day-to-day operations, reduce costs, and eliminate the need for manual processing. With the software readily available to you, it is highly recommended to take the time to see which ones may be most beneficial to your organization.
6. Diversify Sources of Revenue
For long-term financial stability, it is important for every nonprofit to seek out various forms of revenue. Establishing multiple sources of income helps to buffer your organization against potential financial shocks and reduces the risk of insolvency.
When monitoring your finances, ask yourself if your organization is too reliant on any one source of revenue. If the answer is yes, it is time to consider how your nonprofit can begin to create other income sources. For additional nonprofit revenue sources, see our article here.
7. Have Strong Internal Controls
Internal controls ensure accuracy and accountability throughout your organization when adhered to properly. Having these controls aids with accurate record-keeping and seeing that funds are allocated properly.
Overall, it is important to have a system that delegates duties across your organization, meaning that different people will be responsible for different tasks - such as recording transactions or reconciling accounts.
Having this diverse delegation will act as a safety net for your nonprofit in the event that something goes wrong or someone tries to take advantage of their position.
Lastly, Work With an Accounting Partner
Nonprofit financial management is often time-consuming and can be very challenging for those who lack experience. Luckily, there are accountants that specialize in helping nonprofits every step of the way to realize their goals.
At Morris Verdonk Accounting, we have over 20 years of experience working closely with nonprofits and seeing to their financial needs.
We would love to work with you one-on-one in order to help create a strong financial management system for your organization. Contact us today to schedule your consultation and discuss how we can best help you reach your goals. We look forward to working with you.
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