As is the case for any type of organization, growth can bring new challenges to nonprofit financial management. As nonprofits secure more diverse types of revenue, from grants, donations, and new offerings, they may find they face growing donor expectations and an even greater need to stay abreast of the trends that may impact their future funding.
Growth is not always a constant on which nonprofits can rely. Nonprofits may discover that economic headwinds suddenly hamper their access to funding. There will be routine hurdles to overcome. The ability to weather these ups and downs often comes down to a combination of good governance and knowledgeable forecasting. Both of these areas can be enhanced by delivering appropriate accounting transparency that gives your board and donors the insight they need to support your work through whatever challenges may come.
Financial literacy leads to good governance
When helmed by financially literate leaders and directors, nonprofits tend to be better positioned to navigate funding ebbs and flows. Your accounting staff can play a key role in ensuring that board members, organizational leaders, and department heads have access to data that keeps them informed and focused on advancing the mission.
Not every board member or department head comes into their position able to read a financial statement. However, this financial literacy can benefit these and other organizational leaders. Board members charged with fiduciary responsibility over an organization should be able to look at a financial statement and tell at a glance if the nonprofit is in cash trouble or if they are on track to meet a budget. Department heads should be able to tell from financial statements how their department is performing and use this information to make course corrections as needed.
This financial literacy is important, but it shouldn’t be assumed that all nonprofit stakeholders have the same level of insight into nonprofit financial management. Attracted to your cause by their passion for the mission, your board members may not be fluent in the language of balance sheets. As a result, nonprofits should consider asking their accountant, accounting service provider, or auditors to provide some guidance on how to read financial statements and how to look at variances against the budget.
With strong financial governance, nonprofits may also find they can more readily step back and evaluate programs that are not moving in the right direction. Rather than simply pulling back on programs that don’t drive revenue, boards and leaders who trust their financial positions may be more likely to adopt programs that show signs of value, even if they are not financially self-sustaining.
Prepare to meet evolving donor expectations
Nonprofits’ financial leaders aren’t the only ones who have greater access to more data than ever. Your donors are also accustomed to being able to instantly retrieve the data they want. This easy access has led many financial contributors to have higher expectations for detailed, on-demand financial reporting.
Organizations may find their donors are no longer satisfied with financial reporting that provides data in a vacuum. Two-line income statements will prompt questions or lead to mistrust. The same goes for a highly detailed financial statement that can hide information among the minutiae. Your donors, members, and other stakeholders want transparency in reporting. To meet this expectation, nonprofit leaders will want to have tools and processes in place to promptly account for funding use.
Whether you’re tracking grant funds or donations, nonprofits are expected to be able to quickly explain the impact of funds on specific programs. Having proper accounting systems within your nonprofit financial management system will help you deliver the timely, transparent reporting contributors expect.
Watch the financial headwinds
Well-informed accountants aren’t just watching their own financials – they’re also watching economic signals around them.
When your industry is suffering, your nonprofit may have to spend from reserves. This can be easy for some organizations and tough for others. To prepare to weather these challenges, nonprofits should be able to leverage data and trends to predict what’s coming and prepare to strategically adjust their programming, offerings, or budget. By keeping an eye on the economy, and tuning in to what their board, members, and financial contributors are facing in other roles, your accountant can deliver stronger forecasting.
Work with an expert in nonprofit financial management
Adapting your accounting practices is rarely easy. Whether you’re in need of extra support, or someone to lead a comprehensive change in your nonprofit’s financial management, Vault can help. Reach out to our experts anytime.
