8 Data-Driven Tips for Healthy Non-profit Finances

Non-profits might not prioritize making money, but they still rely on a steady income stream to remain healthy and achieve their philanthropic goals. Without healthy non-profit finances, they can’t fund their mission or pay the expenses necessary to keep the organization afloat.

Do you manage money in a non-profit, or wonder what happens to the money you give to charity? If so, this article is here to help. It outlines some of the methods non-profits can use to keep their cash balances healthy, allowing them to continue doing whatever good work they want and wisely use the money for things you want to support as donors.

Managing non-profit finances

Just like any business, non-profit finances cover a variety of functional areas. While we’d like to think the money we donate goes to help the organization’s causes, non-profits face many of the exact costs as any other organization. They must make payroll (relying totally on volunteers can mean spotty services and often leads to service failures), advertise events and stimulate donations, pay rent and utilities, and transportation, in addition to their mission-driven activities.

Lately, non-profit finances have come under renewed scrutiny as news accounts question the compensation of folks like at the Red Cross (where the CEO salary is reportedly over $600,000), where money disappears from charities, or spend money defending questionable politicians and social causes, such as climate deniers. To combat this, the IRS in the US and similar organizations in other countries require reporting to ensure donations go to support the organization’s mission. To keep your non-profit in the black (financially solvent) and out of trouble with how it spends its money, below is some concrete advice on non-profit finances. So, read on!

Get funding from multiple sources

Many non-profits get into trouble when they rely on a handful of funding options. Organizations use governments, wealthy philanthropists, and single sponsors to finance their operations. However, these sources can dry up quickly when situations change, leading to cash crunches and severe long-term issues. Thus, the first step in managing non-profit finances is to get funding from multiple sources. Grants, donations, and partnerships can all help raise the finances required to produce tangible results to show to stakeholders.

The good news is that there are easy ways around this issue. Simply developing a diversified funding portfolio makes it more straightforward to be flexible and stable over time. One option is to launch a membership program where donors provide funding in exchange for special access to resources or analysis. Another option is to systematize fund-raising events to support traditional donation structures. These give a burst of money, which is sometimes statistically predictable, depending on how you operate.

Create a strong budget

Another approach is to create a budget that makes sense for your organization’s goals. Setting out precisely what you’re going to do and how you will spend the money can help you with unexpected expenses in the future. Non-profits often get into trouble when they don’t have a clear plan for how they will use the money available to them. Spending frequently goes off the rails and doesn’t account for the cost of running the non-profit’s operations or delivering on stakeholder expectations.

The trick here is to use historical financial data to create projections of how much money will be necessary in the future. Understanding these requirements makes it less likely cash crunches will occur.

This is where program management software for nonprofits comes in handy. Digital tools can plot accurate charts showing where a company is likely to be going forward and what will happen in the future.

Build up reserves

Building up reserves is another pro tip for non-profits. Having a cushion for when times get tough allows the organization to survive and thrive without having to close down or go to existing donors and ask for more funds to keep the operation going. Building a reserve fund is challenging in an organization like a non-profit because there is always somewhere you could spend the money. Needs often exceed your ability to deliver, leaving cash reserves empty most of the time.

The key here is to use discipline. Setting out precisely how much money you have in reserve in your charter can reduce the temptation to spend it unnecessarily. You want a reserve fund that can cover at least three to six months of expenses. Less than this, and you risk running into trouble.

Implement financial controls

Implementing financial controls in your non-profit is another excellent idea. You should have complete oversight of money coming into and going out of the organization. Most of the best-performing non-profits have financial policies in place that separate duties. For example, you might have someone responsible for bank reconciliations and another person who does check writing. You might also have someone who conducts regular financial audits, reviewing your processes and ensuring that they align with your mission.

In the jargon of finance, people in the non-profit sector call this aspect “governance.” Getting it right with key board members and staff can help you better understand your finances and improve regular reporting. Having a board meeting where you set the rules and apply a fixed process can be enormously helpful and set the tone for future operations.

Pursue grants

Another approach is to pursue grants that allow you to be more strategic with how you spend money. Establishing guaranteed lines of funding makes it more likely you can fulfill your mission and do so in a stable way without running into issues. Grants usually come with strings attached (unfortunately). So, if you use these, make sure that partners align with your mission. Don’t work with grantors who make unreasonable demands or expect things from your operations you can’t deliver. Get them to maintain a good relationship with you so you can move forward.

Monitor cash flow

You also want to monitor your cash flow as a non-profit. While it might be slightly different from that of a business, the same general principles apply. Getting it right ensures your organization can continue operating long-term and won’t need to take out lines of credit during high-spending, low-income periods. Again, the best approach to solving this issue is to use accounting software that lets you track future income and expenses. These allow you to anticipate cash shortages or surpluses over the long run based on your spending plans.

This information can be helpful when presenting information to the board or senior grantors. You can show them what you want to achieve and which financing tiers will help you achieve it.

Engage in healthy partnerships

Another way to keep your finances healthy is to engage in healthy partnerships only. Working strategically reduces your overheads and ensures you save money in the long run. For example, you could share office space with a partner if they have spare capacity. This approach allows you to save money and helps you move closer to your goals.

When marketing your non-profit, you might reach out to build partnerships with local or national celebrities. These influencers often have extensive networks they can activate to help support your cause without requiring any financial contribution.

Invest in staff

Finally, it makes sense for a non-profit to invest in its staff. Plowing money into training and education fosters a positive work environment and improves retention. The more experienced staff members become, the better they are at running the non-profit with lower overhead and higher efficiency in other areas. Relying solely on volunteers can mean you don’t have the skills necessary to manage non-profit finances, an efficient operation, or market to raise funds effectively. It also may mean that sometimes you can’t provide needed services as you have trouble matching volunteers with the needs of your organization.

Managing volunteers also requires a staff member to avoid conflict among volunteers and ensure they adhere to the organizational guidelines governing their efforts on behalf of the non-profit.

Conclusion

Managing non-profit finances is essential if you want to optimize the ability of your organization to raise funds and spend them to support your organization’s mission. In this post, we discussed multiple tools you can employ to help with this vital aspect of running a non-profit.