It’s safe to say that they majority of nonprofit organizations do not run on a substantial amount of money. In fact, three-quarters of the nation’s nonprofit organizations operate on less than one million dollars each year, and most operate on an even smaller amount. Where these nonprofit organizations lack large funds, they make up for in impact. These nonprofits not only respond to their community’s needs and desires, but they are also staffed by members of the community who care about their community and strive to make it a better place.
We’ve worked with numerous nonprofit organizations over the years and have discovered that smaller organizations often struggle with the financial challenges unique to their size and structure. While the directors and leaders of these organizations generally have substantial knowledge in the area of nonprofit programs, they often lack the financial knowledge that larger nonprofit organizations possess. In addition to this, smaller nonprofits with limited budgets often have difficulty bringing someone with financial expertise in-house. As a result, the executive director ends up handling the nonprofit’s finances, often relying on the aid of a part-time bookkeeper who is not as committed to the organization’s strategic goals. Without the right financial guidance, nonprofit organizations struggle through audits and have difficulty making financial-based and data-driven decisions for the organization.
Due to the lack of funds, smaller nonprofit organizations are forced to run as lean as possible. Many nonprofits cannot invest in infrastructure or software systems to help them better manage their finances and programs, pay their employees competitive wages, or operate in their desired building location. Executives often work at all-hours trying to deliver the organization’s programs, run the organization effectively, raise funds, and pay the bills.
The reality of an overworked staff, limited funds, basic technology, and minimum financial training leaves nonprofits vulnerable, particularly in the time of economic uncertainty. However, with the right steps, nonprofits can improve their financial health and chances of success.
- Remember that your financial practices are just as important as your organization’s mission statement. If your organization lacks the adequate resources to develop sufficient financial tools, look to other nonprofits in your area for guidance. See if you can borrow a template from a peer organization, or bring in board or staff members with expertise in the financial field.
- Make smart decisions about facilities. Don’t jump at the chance to secure a cheap facility only to drown in the price of up-keep. Look at the whole picture when selecting the facilities for your nonprofit organization and keep in mind that depreciation is a very real thing. If you are unsure about the lasting value of your facilities, bring in outside help.
- Recruit your board members based on your organization’s needs. Smaller nonprofit organizations typically need more from their boards than just governance and fundraising support. Put the desired functions of your board members in writing, revise your expectations as your organization evolves, and work toward specific goals for your organization’s board and purpose.
- Remember that growth comes with a price. As your organization grows and adds new programs, keep in mind that these changes cost money. Be wary of the mission creep and imbalances that can result from adding new programs. Added revenue – as beneficial as it may be – also means added expenses.
- Embrace in-kind donations, but have a plan for their replacement. The donation of time and work is invaluable to small nonprofit organizations; however, your organization cannot rely on these in-kind donations all of the time. Make sure that you have a concrete plan for replacing volunteer labor and worn-out equipment as necessary. Remember that it’s ok to turn down donations that you don’t need or want. Added donations often add responsibility that small nonprofits have a hard time keeping up with.
The above tips –when put into effect – can help improve your organization’s overall financial health. By making smart decisions now, your organization’s finances will be better off later. In addition to these financial tips, your organization should consult a financial advisor or CPA. A financial advisor can help guide your organization to a greater level of financial success and keep your organization running smoothly and effectively, as well as help you understand the various financial requirements you must adhere to.
Stay tuned for next week’s blog on finding the right CPA for your nonprofit organization.