Ad Disclosure: We earn referral fees from advertisers. Learn more
You have to admit it; Managing the finances of a nonprofit organization isn’t as easy as the way McDonald’s can make it. There are many industry specifics that make financial management even more difficult than an ordinary business. The truth is that nonprofit accounting is often very complicated. This happens if you don’t have a clear view of managing your finances.
It’s difficult for nonprofits to keep their operations going, but the financial management component can be accurate. For example, federal and state laws must be followed even when it is a non-profit organization. If you don’t comply, you could end up in serious trouble.
The good news is that there are several ways to better manage your finances and get the most out of your resources. Let’s look at some of them.
Financial Management for Nonprofit Organizations
Financial management refers to the cash flow management process of a nonprofit organization. It involves accounting, budgeting and internal controls to maximize its impact on society.
There are two types of financial management: traditional and non-traditional. The conventional approach relies on bookkeeping, which includes preparing financial statements, making budget projections, reporting to donors, and maintaining a formal accounting system. The non-traditional approach uses financial software to record transactions, make budget projections and report results.
The main difference between traditional and non-traditional methods is that the former takes longer to complete than the latter. Traditional methods rely on human judgment to determine which activities will lead to a positive outcome. But non-traditional methods rely on computers and algorithms to perform these calculations.
7 Ways to Improve Financial Management for Nonprofits
Some of the strategies to apply for better financial management include:
- Set a budget
Create a budget at the start of each year and revisit it several times throughout the year, at least quarterly. Include all sources of revenue including grants, fundraising and operating revenue. Be sure to include all expenses including;
- Fixed costs such as rent, utilities and payroll
- Variable costs such as supplies
- Activity expenses such as marketing or events
- Travel and other expenses
Assign roles for managing this budget and make sure your staff knows who is responsible for tracking spending in each area.
- Use management software
Management software will help your business organize its finances in one place. This helps track expenses and keep receipts for audits. Many software packages also come with mobile apps, so you can access your financial data anywhere as long as you have an internet connection.
Benefits of using a software solution include:
- Automation of accounting processes. Many manual processes can be automated through software. This reduces the risk of errors and frees up your staff time to focus on other tasks.
- It improves transparency and accountability. The auditor’s job is made easier with an electronic record of transactions and documentation of all approvals in one place. With multiple departments accessing information through a single system, everyone knows where the money is coming from. They also know where it’s going, reducing the potential for funds to be wasted or misused.
- Provides easy grant tracking and reporting. Most grants require detailed reports on how the funds were spent. Association management allows you to easily track these expenses by project and by donor. This way, you can report the amount spent on different programs, maximizing your reporting capabilities when applying for new grants.
- Track your expenses and income
If you don’t track your expenses and income, you don’t know how much money is flowing in and out of your organization.
Running a nonprofit means you will have all kinds of expenses, from paying employees, renting office space, paying utilities, and more. Even if you don’t have an office or employees, there will still be expenses to run a nonprofit. Tracking these expenses can ensure that your income is going where it needs to go.
Along with revenue tracking, nonprofits should also track their sources of revenue. This may include donations, grants and membership fees. Understanding your nonprofit’s sources of revenue can help you determine where money should be reinvested in the organization.
- Save as much as possible
If you want to stay afloat financially, start cutting unnecessary expenses. This means reducing activities that do not contribute to the growth of your organization or the realization of profits.
You also need to find ways to reduce operating expenses without sacrificing quality or efficiency. Consider purchasing wholesale supplies from a wholesale supplier rather than retail stores. You can also negotiate with sellers for lower prices. Or, shop around for cheaper alternatives for supplies that aren’t essential for your mission.
- make investments
One of the keys to an effective financial management plan is having a clear investment plan. This may include funds donated by supporters, funds raised at events, or funds from grants and other sources. Whatever the source of your cash, make sure it maximizes its potential through interest income and dividends.
A wise investment will allow you to expand your organization’s services and help more people in need. With proper investments, your organization could grow without any extra effort on your part simply because you made the right decision at the right time.
- Set up separate accounts for each fund you manage
If you are a church, keep your building maintenance fund separate from your general operating fund or money you raise for missions. If you are a private foundation, separate your endowment from the money you distribute to beneficiaries. Set up individual bank accounts to easily track all your funds. It will also make it easier at tax time and you will need to report each fund separately.
- Pay attention to trends
Nonprofit owners should regularly review their financial state to see if they can identify any trends that might affect their budget. For example, if you see an increase in donations or sales, it could indicate that it’s time to expand. If you notice your income dropping, it might be time to find ways to save some money. Paying attention to trends can help not only with financial management, but also with planning for future growth.
The fact is that nonprofits, despite their good intentions, are like any other business. They need to do everything they can to be as cost effective and efficient as possible so that they can devote the maximum of their resources to their programs. This will ensure that donors, customers and community members are the most satisfied.
To make reporting easier, use Association Membership Management to track your finances and make your life a little easier. This and other practices above will also increase your bottom line. It’s a win for everyone!