There’s one thing that most businesses and nonprofits can agree on: mismanagement of funds can quickly lead to disaster. But, how money is managed is completely different inside the two entities – each with its own regulations and responsibilities.
There are tons of resources available for business owners (some even available here at ModVentures), but the same can’t be said for nonprofit organizations.
If you are a 501(c) organization, let’s talk about how to manage money in your nonprofit:
The health of your organization can typically be viewed through your financial health. Donations, contributions, grants, and funds are constantly changing, which, with proper preparation, doesn’t necessarily need to place your organization in an unstable position.
Preparation is how you’re going to manage your nonprofit’s finances – it’s in creating systems, setting realistic expectations and goals, and having clear processes.
When you start using proper ‘techniques’ or processes when managing money in your nonprofit, you setting your nonprofit up for success. This foundation will keep your nonprofit’s financial health in the green – the perfect place for focusing on the reasons why you started in the first place.
Money management is simple in theory, you have to track where your money is coming from and where your money is going. But, when it’s coming from what seems like everywhere and your expenses are the same, tracking it all begins to get complicated.
And while your accounting system plays a role in staying organized and on track, it’s not the only deciding factor when it comes to if you’re managing your money properly.
Here are some of the best practices you can use to manage money in your nonprofit:
Financial policies are policies that identify how cash is handled, reimbursements are paid, reviewing compensation, and other similar tasks. Putting financial policies in place allows you to have a base to work from and teach to employees – or anyone managing money in your nonprofit.
Policies also reduce errors as most policies will have an SOP (system of processes) that explains how to conclude said policy.
To successfully manage money in a nonprofit, you need to have a budget with clearly defined values for the different aspects of your organization. For example, you should have defined activities, specific time frames, and measurable goals.
While you should be reconciling your accounts to prevent any financial mishaps, sometimes we don’t hit our goals – leading to low or no cash flow. You should be regularly reviewing your nonprofit’s financial statements and performance to create new goals and to track your progress.
You should plan to review your financial statements monthly, quarterly, and annually.
A huge part of managing money for nonprofit organizations is ensuring that you’re keeping up with and keeping an accurate statement of activities. New information and reports should be added to your statement in a timely manner, along with double-checking to ensure that your information is accurate.
Not only will this allow you to manage your funds, but this will be necessary when your nonprofit auditor reviews it during their financial review.
Focus on your funding, but not in the sense that you need to continuously chase down funding – more in the sense that you need to focus on finding sustainable funding and diversifying your sources. For example, if most of your funds are thanks to restricted grants, you need to take time to focus on getting general donations.