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You have to admit it; managing finances for a nonprofit is not as easy as the way McDonald’s can do it. There are a lot of industry specifics that make financial management even more challenging than a regular company. The truth is that nonprofit accounting is often very complicated. This happens if you don’t have a clear picture of managing your finances.
It’s difficult for nonprofits to keep their operations running, but the financial management component can be precise. For example, federal and state laws must be followed even when a nonprofit. If you don’t adhere, you could wind up in serious trouble.
The good news is that there are several ways to manage your finances better and make the most of your resources. Let’s look at some of them.
Financial Management for Nonprofits
Financial management refers to the process of managing the cash flow of a nonprofit organization. This 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 an official accounting system. The non-traditional approach utilizes 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 successful outcome. But non-traditional methods rely on computers and algorithms to make these calculations.
7 Ways to Better Financial Management for NonProfits
Some of the strategies to apply for better financial management include:
- Set a Budget
Create a budget at the beginning of each year and revisit it multiple times throughout the year, at least quarterly. Include all income sources, including grants, fundraising activities, and operating income. 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 costs and more
Assign roles for managing this budget and ensure your staff know who is responsible for tracking expenses in each area.
- Use a Management Software
Management software will help your company organize its finances in one place. This helps track expenses and keep receipts for audits. Many software programs also come with mobile apps, so you can access your financial data anywhere as long as you have an internet connection.
The benefits of using a software solution include:
- Automation of accounting processes. Many manual processes can be automated through software. This reduces the chances of errors and saves time for your staff to focus on other tasks.
- It improves transparency and accountability. The auditor’s job is made easier with an electronic trail of transactions and all approvals being documented in one place. With multiple departments accessing information through a single system, everyone is aware of where money is coming from. They also know where it’s going, thus reducing the potential for waste or misuse of funds.
- Ensures easy tracking and reporting on grants. Most grant funding requires detailed reports on how funds were spent. Association management allows you to track these expenses by project and grantor easily. So, you can report on how much was spent on different programs, thus maximizing your reporting capabilities when applying for new grants.
- Track Your Expenses and Revenue
If you’re not tracking your expenses and revenue, you aren’t aware of how much money flows in and out of your organization.
Running a nonprofit means that you will have all sorts of expenses, from paying employees, renting office space, paying utilities, and more. Even if you don’t have an office space or any employees, there will still be expenses to operate a nonprofit. Tracking these expenses can ensure that your revenue is going where it needs to go.
In addition to tracking revenue, nonprofits should also track their sources of revenue. This can include donations, grants, and membership dues. Understanding the sources of revenue coming into your nonprofit can help you determine where the money should be invested back into the organization.
- Save as Much as Possible
If you want to stay afloat financially, start cutting down on unnecessary expenses. This means scaling back activities that don’t contribute to growing your organization or making a profit.
You should also find ways to cut operating expenses without sacrificing quality or efficiency. Consider buying supplies in bulk from a wholesale supplier instead of retail stores. You can also negotiate with vendors 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 plan for investments. This can include funds donated by supporters, money that has been raised at events, or money from grants and other sources. Whatever the source of your cash, ensure it is maximizing its potential through interest earnings and dividends.
A wise investment will allow you to expand your organization’s services and help more people in need. With suitable investments, your organization could grow without any additional effort on your part simply because you made the right decision at the right time.
- Set Up Separate Accounts for Each Fund You Maintain
If you’re a church, keep your building maintenance fund separate from your general operating fund or the money you raise for missions. If you’re a private foundation, keep your endowment separate from the money you distribute to grantees. Set up individual bank accounts to easily track all of your funds. This will also make it easier when tax time comes around, and you need to report on each fund separately.
- Pay Attention to Trends
Nonprofit owners should regularly review their financial statements to see if they can identify any trends that might affect their budget. For example, if you see an increase in donations or sales, this could indicate that it’s time to expand. If you notice your revenue is declining, it might be time to find ways to save money. Paying attention to trends can help not just with financial management but also with planning for future growth.
To Sum it Up
The fact is that nonprofits, despite their good intentions, are like all other businesses. They must do everything they can to be as cost-effective and efficient as possible so they can put as much of their resources into their programs. Doing this will ensure the most satisfied donors, clients, community members.
To make filing easier, use association membership management to keep track of your finances and make your life a little easier. This and other practices above will also boost your bottom line. It’s a win for everyone!