Have you recently founded a nonprofit organization? Or are you an entrepreneur who is looking to make a difference? This blog post, all about nonprofit financial management, is for you.
Managing and governance do have a place in the grand scheme of financial management. But the truth is, the planning process is the most important part of nonprofit financial management because it paves the road your company will take on its drive toward success.
So, let’s get started! Here's what you need to know about financial management for your nonprofit to get you started on the right foot.
The first step of financial planning is to create a budget. To do this, you must project your cash flow in the time increments that make the most sense for your company (monthly, quarterly, annually, etc.).
Next, determine the true cost of your programs, including operating costs, staff salaries, and educational materials. This number will tell you how much income you need to generate to stay out of the red zone. This number will also act as a baseline as you begin to set company goals.
Goals are an important aspect of any financial game plan because they provide the motivation and direction a company needs to reach its overall objective.
However, unlike most companies, nonprofit organizations do not set goals for the sole purpose of monetary gain.
Instead, their goals are focused on bettering the community, primarily through awareness and local outreach. On the flip side, nonprofit organizations still need to make enough money to do any of this well, so finances should certainly be considered when setting goals for a successful year.
A note of caution: Although you want to push yourself to do better, an impossible goal can push you into discouragement. Be sure the goals you set are realistic and that the plan to reach them is doable.
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As time progresses, use available data to connect the dots between reality and your goals and make adjustments where necessary. Project and financial monitoring is an excellent way to do this.
For example, let’s say you’re offering an educational workshop for parents of diabetic children.
Registration is $20 per family, and after the instructor and workbook fee, you calculate you’ll break even after eight families enroll. Unfortunately, you only had six families enroll last month (you needed eight to break even), which means you lost $40.
What do you do?
Well, first of all, you’re not going to panic. You still have plenty of time to make up the difference because it’s the beginning of the year. Knowing that you need to do so allows you to make adjustments to your company’s game plan.
You could raise registration to $25 per family or $15 per person. Maybe you’ll spend a little more time promoting the workshop in your school district and daycare facilities. Perhaps you decide to organize a sugar-free bake sale or a walk-a-thon, or some other fundraising event.
In reality, how you make up the difference is not as important as the fact that you knew you had a difference to make up for because of your efforts in monitoring. By keeping informed, you won’t have any unwelcome surprises at the end of the year. You might even have a little extra money to start funding a new program.
(Have you considered hiring outsourced bookkeeping for your nonprofit? Here are some of the advantages of doing so)
As illustrated in the previous example, staying up-to-date on your company’s financial success is critical to its vitality. The best way to do this is to maximize your use of financial reporting methods. Balance sheets, profit and loss summaries, and reconciliation reports are a few to consider.
Once these reports are composed, the data should be interpreted to assist you in planning for next year and the years after.
(Speaking of profit and loss statements, here's how to read and understand yours)
As a professional bookkeeping company, we provide these services and a wide range of others to help nonprofits follow their dreams. We understand that although money is not the sole focus of companies like yours, it is necessary to promote change effectively.
For more information on how we can assist you in nonprofit financial management planning, please contact us at 865-212-0063.
This post was first published in 2015, but it was updated in 2021 just for you.