How to Have a Financially Responsible Nonprofit

Last Updated on October 5, 2021 by Guest

Financial stress can be devastating for a nonprofit. Nonprofit organizations support people, animals, and communities experiencing hardships, yet their financial situations can be dire. Nonprofits typically have little operating cash on hand and nothing saved for a rainy day. Under those conditions, a considerable unexpected expense could jeopardize everything from payroll to services.

Sadly, most nonprofits are small, with few full-time employees, which means the responsibilities fall on a few people. Many of these organizations operate with budgets below what they need, which means they face financial challenges just to stay afloat. Here are the ways you can have a sustainable and financially responsible nonprofit.

Build Up Reserve

Building up your reserve will build up your resilience. Your reserve will help you in times of financial trouble, acting as an emergency savings fund. A reserve can help you sustain unforeseen financial events. Determining how much your reserve should be will depend on many factors, including whether you own your facility, your sources of funding, and how many employees you have. For example, if you own your property, you’ll need to have a reserve set aside for maintenance if there is damage to the building.

In addition to financial reserves, consider a talent reserve so you can be prepared for anything. If you lose the person who has been running your nonprofit for years, you don’t want to be stuck without a contingency plan or someone next in line who can take on additional duties.

Reduce Reliance on Grants

As your nonprofit grows, try not to be so reliant on government grants; instead, develop other ways to get funding so you can have multiple funding sources. Creating ways to generate cash can help you save more money, so you don’t have to worry about bills or payroll.

Many nonprofits do additional activities like running a store or restaurant to earn income for the organization. Depending on your nonprofit’s cause, you can sell products or services to make more money. For example, an animal shelter that helps train dogs before finding them homes can sell their dog training services to pet parents to earn an income. You can make your services more attractive than businesses by offering them at a discounted rate. Or, your nonprofit can host fundraising events as a way to earn funding for a project quickly.

Another way nonprofits can ensure funding month over month is to offer subscription-based donation solutions so individuals can donate the same amount monthly.

Understand Cash Flow

Nonprofits have a unique balance sheet that differs from for-profit businesses, and many people running these organizations don’t handle their cash flow. If you rely on pledge dollars or complex forms of financing, you’ll need to understand the nuances, restrictions, and contingencies.

Understanding cash flow helps you avoid non-binding pledges and cash that can’t be used for general operations. In fact, without the correct balance sheet and knowledge of the numbers, you might think your nonprofit has more money than it does.

Improve Efficiency

To become financially responsible, your organization will need to find ways to save money, including improving your operations’ efficiency. The costs of goods and services will continue to rise, but it’s up to you to find ways to lower those operating expenses while improving your revenue. To improve efficiency, consider taking advantage of technology so you can get more done.

Unfortunately, technology comes with upfront costs, but it can help you keep costs low in the long run by adding capacity and speed. In addition, your donors and sponsors will support the use of technology, which will allow them to donate to nonprofits more efficiently and easily than before.

Collaborate

Nonprofits shouldn’t go at it alone. Instead, collaborate with other nonprofits with other missions. You can look for nonprofits that are supporting causes parallel to yours. For example, if your nonprofit tutor’s children, you can partner with a nonprofit that helps people apply for jobs. By joining forces, you can combine resources, share ideas, and use one another as resources.

Nonprofits supporting each other also allows them to hire one another before they turn to other vendors.

Learn How to Budget

Budgets provide you with the financial information you need to support your planning efforts. You should have a total budget for your nonprofit, along with budgets for individual tasks and events. Make sure you stick to your budget, so you don’t overspend.

Diversify Funding Sources

Instead of relying too heavily on one source of funding, such as grants, you should aim to diversify your sources. There are several ways to fund your nonprofit, so consider all of the o from selling goods and services to getting sponsors for events, so you won’t lose out on too much funding if one option falls through.

Encourage Financial Literacy

As a leader of a nonprofit, you not only need to be financially literate, but you need to encourage your staff to learn more about budgeting and finances. Anyone who deals with the financial aspect of your organization should understand the basic terminology and know how to use financial reports.

Quickly Respond to Financial Problems

Nonprofits don’t have the same resources as large corporations, which means things can go wrong, including lost contracts, canceled events, and high expenses. So have a plan of action in place that allows you to respond to financial problems, so you don’t have to dip into the emergency savings to make up for lost funding.

Financial Responsibility of Nonprofits

Nonprofits don’t have a team of accountants working for them like large corporations. Instead, nonprofits are made up of a few individuals and rely on volunteers to help get work done. As a leader of a nonprofit, you need to be financially responsible so you can continue to support your community and keep the lights on while paying your employees. Losing sight of your budget can cause a ripple effect throughout your entire organization, so make sure you have your eyes on the finances at all times.

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