Strategies for Nonprofits to Improve Their Financial Management
July 11, 2016
Sound, strategic money management is vital for a nonprofit organization to succeed in its mission. Poor financial management not only makes it difficult for an organization to achieve its goals, but also makes donors less confident in an organization’s ability to achieve its mission, resulting in a reduction of overall gifts and grants. To effectively manage their finances, nonprofits should review their financial and management practices against these tried and true strategies:
1. Develop clear financial policies
Clear policies ensure that everyone within the organization operates under the same rules and ensure there are no incorrect assumptions about how an organization's money can be spent or managed. The National Council of Nonprofits recommends establishing policies on gift acceptance, conflicts of interest, expense reimbursements and whistleblower protection. In addition, it may be a good idea to review the compensation plans of the organization's executives at least once a year.
2. Always consider the full costs of funding new programs or initiatives
Forbes contributor Neela Pal urges nonprofits to think carefully before accepting new funding related to new programs or initiatives. While this may seem counterintuitive, sometimes there may be more costs associated with a contribution than the amount provided by the contribution itself. For example, if a nonprofit is pursuing a grant to fund the start of a new program, it could be helpful to analyze the ongoing operating costs to determine whether the grant provides enough resources to sustain the full costs. If not, the new funding may not be worth it, as the organization could end up running into budget challenges associated with the additional costs of the new program.
3. Regularly review finances and evaluate effectiveness of programs
Even if an organization has clear financial policies in place, changing circumstances may cause the organization to get off track. The Wallace Foundation suggests monitoring financial results on a regular basis to determine whether money could be used in better ways and whether the ways it is currently being used is bringing the organization closer to its goals.
When reviewing finances, it could also be wise to compare revenue streams against all fixed and variable costs so you can create a more accurate budget. Your analysis should consider whether each revenue stream is consistent, flexible or unpredictable.
4. Find the right bank
A bank that specializes in nonprofit financing can help nonprofit organizations reduce their annual expenses and often obtain more effective loan products.
At Western Alliance, we offer a variety of solutions, including tax-exempt loans, to meet a nonprofit's unique financing needs. Working with us could help you to refinance your existing loans, use your credit cards for better cash flow, manage the timing of receivables from government grants or capital campaigns and fund essential capital improvements. Whether your nonprofit has been around for one year or 10, Western Alliance could be a smart choice to help you gain better control over your finances so you can focus on the mission of your organization.
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