Financial Advice for Your Non-Profit Organization

Financial Advice for Your Non-Profit Organization

Well-run non-profit organizations employ sound financial management strategies that stabilize and grow the business over time. But not all non-profit founders are trained in the technical complexities of financial management, including budgeting, fundraising, and interdependence. To help ensure your organization continues to fuel whatever social cause you've chosen, whether it's a wildlife sanctuary or a cancer research program, here are six financial tips to keep in mind that will help you build the same stability and flexibility that successful non-profits have:

Create a Transparent Budgeting Plan

Your budget plan serves as the spine that supports all organizational activities. Effective budgeting must be transparent and realistic. And this level of transparency can be achieved by recording individual items that make up each budget line. You should then monitor real-time financial activity against your established budget. Keen budget observation ensures that the organization has sufficient resources at any given time to meet the needs of its current and upcoming projects and objectives. A transparent budget also easily helps weed out mismanagement and fraud within your operations through regular monitoring and reconstruction.

Know What to Track

A transparent budget plan won't do you much good if it doesn't incorporate the right data points. Your non-profit's financial plan must include a multi-year analysis of all revenue streams, costs, and projected cash flow requirements over a 5-,10-, or even 20-year time frame. A good place to start drafting a financial plan for your non-profit is with your income statements. This accounting document details your income and expenses for different periods of time. You can determine your non-profit's current financial health by dividing your current assets with current liabilities and then calculating the ratio.

Implement the Right Accounting System

Non-profits and for-profit businesses are ruled by the same basic accounting principles, yet there are subtle differences that both types of organizations should account for to maximize accounting efficiency. Perhaps the starkest difference between the two types of business from an accounting perspective is the net worth on its balance sheet. For a traditional for-profit business, the net worth reflects the owner's equity. However, since a non-profit does not technically have owners, the net worth is displayed as different categorizations of net assets.

Establish Financial Controls

Financial controls are essentially protocols that are designed to safeguard the organization's interests and assets. Perhaps the most basic example of a financial control that you can and should implement in your non-profit is the involvement of at least two executive-level organization members in every financial transaction or decision made. Another common financial control is having your organization's invoices regularly evaluated by department heads before they are officially recorded into the general ledger. Ensure that all financial controls are put in writing and disseminated within the organization.

Know All Your Funding Options

Another noteworthy difference between non-profits and for-profits is the funding streams they have access to. For a non-profit, there are many sources of income you can take advantage of to fulfill your mission. This includes fees for goods and services, individual donations and major gifts, corporate contributions, foundation grants, membership dues, endowments, and government grants. You also have access to church loans, which can be a great way to fund expansionary projects, such as adding more rooms to your non-profit's existing building. Church loans differ from a standard personal mortgage in that the decision to either approve or reject the loan application is based on potential revenue earned by the non-profit as a result of said loan.

Fundraise Like a Pro

While fundraising may sound simple and straightforward, there are several legal and regulatory aspects to it that you need to know about to avoid any issues during and after fundraising events. For instance, most states mandate non-profit registration prior to any fundraising campaigns. Before you start soliciting contributions via a website or cold calls, register your non-profit in the required state/s. You should also determine the best fundraising ideas or models that best suit your organization and cause. While charity auctions or peer-to-peer fundraising may work for one non-profit, it doesn't mean it'll work for you.

Building a non-profit in service of a bigger goal or cause requires courage and dedication, but to ensure its survival and continuity requires more than just these two elements. You'll need to have a sound cash flow system to pump blood throughout your organization's veins.
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