Tips for Improving Nonprofit Financials

Tips for Improving Nonprofit Financials

Published : June 14, 2017

The average nonprofit is severely lacking in funding. Just like any for-profit business, nonprofits need to manage expensive operating costs — like employee retention, or technology adoption — without the typical business model of exchanging goods for cash. That leaves nonprofits to rely on strong emotional appeals to convince donors to support the organization financially.

Though emotion is crucial to winning donor support in the nonprofit sector, the average organization can’t thrive on money from donors alone. Nonprofits must focus heavily on their financial strategies, and learn how to improve their chances of sustainability in an increasingly challenging and competitive world. So, how can the average nonprofit improve their financials?

1. Introduce a Financial Expert to Your Leadership Team

In a nonprofit, it’s common for individuals in leadership positions to wear many hats. Key employees may be relied upon to take care of technical duties and daily tasks, while also managing staff or developing high-level strategies.

This may leave the finances of the organization in the hands of someone with little to no financial background, or a key manager wearing too many hats to give adequate attention to the budget. Finance is one area that’s inherently complicated, and so crucial to the organization’s survival that it demands a dedicated expert to manage it effectively.

Most nonprofits simply don’t have the cash to appeal to top talent with high wages and salaries. As such, financial experts on nonprofit teams tend to focus entirely on administrative tasks — like auditing the business, tracking expenditure, and keeping the nonprofit “above board.” Those tasks, while necessary, miss the bigger picture: your organization can benefit from making finance a fundamental part of your strategy.

This means having someone in the leadership circle that knows how to correlate budget and success. It means asking questions about how each expense will grow your organization and move you towards your goals. Is the value of upgrading technology worth the initial costs? For most, the answer is yes. Is it time to invest in recruiting multiple part-time workers, or adding one more key executive to the leadership team?

2. Create a Realistic Budget, and Long-Term Plan

Most nonprofits focus extensively on ways to raise funds — it’s equally important to focus on methods for spending those funds and budgeting effectively. Be cautious of becoming overly-optimistic about your potential fundraising capacity. While drive is important, it’s crucial to anticipate the common curveballs nonprofits face. Chances are, you’ll run into at least one roadblock throughout the process, and your organization will bounce back much faster if you’re ready for it.

When creating your budget, think carefully about how much it costs to run your program; from paying staff members, to managing the bills and running campaigns. Think about the long-term expenses you’re obligated to pay, and make sure you always have a reserve to fall back on in times of hardship. Just as typical businesses account for depreciation in their financial plans, nonprofits need to take similar precautions. Be motivated, optimistic, and driven in your fundraising; and be diligent, realistic, and proactive in your budgeting.

3. Understand How to Organize and Retain Your Team

Around 71% of not-for-profit companies suffer from staff shortages. This doesn’t mean that there aren’t enough people invested in your cause; more often, it’s a symptom of poor recruiting and retention strategies (or, in some cases, no retention strategy at all).

Nonprofits naturally attract staff devoted to their particular cause, often motivated by the same ethics and goals as the charitable company. It’s important to make sure you look for more than just passion and interest in your new hires; look for particular and valuable skills in your staff, just as you would in a for-profit business.

You need to attract the right talent to move towards your organization’s goals, especially when it comes to core leadership roles. Although you might not be able to compete with the for-profit sector in terms of wages or equity in the business for your key staff, you can offer alternative benefits that attract and retain talented professionals — while offering support for your organization’s financial health. For instance, Supplemental Executive Retirement Plans (SERPs) are often used to provide valuable retirement, disability, and death benefits to key employees and their families as long as agreed-upon goals, such as performance, productivity, and/or longevity, are accomplished.

4. Choose Your Facilities Wisely

It’s tough to stick to a restrictive budget in a nonprofit. In order to find enough money for staff wages, many groups cut corners on other expenses like facilities — forgetting that it’s more important to evaluate the overall cost of investments, than to make decisions based on initial expense. Just as it’s crucial to choose the right people for your board (and retain that talent), you must also consider the depreciation facilities experience. The price you pay upfront isn’t the only cost associated with your facilities; there’s also long term maintenance, repairs, and future upgrades to consider.

While one office building may cost more initially, it may also include facilities management, providing someone to turn to when the heat fails or the roof leaks. A building that costs less at the outset may require you to spend more down the road, to hire someone when repairs are needed. Some of the more expensive facilities may include benefits like utility leases, free parking, and access to internet and phone lines. Remember to examine the overall expense of each investment for your organization.

5. Realize That Growth Has a Price

Growth is crucial, but remember that big changes cost money. Adding new programs and services to your nonprofit may attract more investment and donations in the long-term — but it will also mean that you need to find additional funding in the short-term to facilitate such changes.

Even if you can turn to grants for financial support, you may need to hire additional financial managers to help you keep track of the documentation that’s requested by most grant bodies. From ensuring that you have the right benefits in place, to organizing your finances carefully, there’s a great deal of planning involved in running a nonprofit business. With the support of a financial expert, you can ensure that the cost of growing your nonprofit is in line with what the organization can afford.

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