6 Financial Management Tips For Nonprofits

Nonprofit organizations need funding to provide essential resources, advocate for communities worldwide, and pay their employees fair wages. However, managing these funds can be challenging for nonprofits.

Financial management is an essential function in nonprofits. But it can seem impossible for these organizations to meet growing demands for their services when they only have access to a limited amount of money. 

Fortunately, this article shares tips your team can use to manage its finances and make the most of your funding. 

1. Make and stay within a budget

A budget serves as a financial guide that you can refer to know how well your organization is performing. To create a budget for your nonprofit, you should start by determining your organization’s revenues (grants, online donations, in-kind gifts, etc.) and expenses (salary, rent, utilities, etc.). Then, set aside a specific portion for each program and campaign you intend to run.

For example, Program A can get 15% of your revenue from grants, while Project B can have 20% from donations. Every program, project, and campaign should have a dedicated fund to ensure its successful preparation and launch. Overspending can be avoided when every program has its budgeting figured out beforehand. 

2. Create multiple revenue streams

In his article on nonprofit financial planning, Jamie Aten from the Humanitarian Disaster Institute notes that organizations with multiple revenue streams can weather difficult seasons. Doing so creates an opportunity to thrive and keep raising the money needed to achieve sustainable growth.

This seemingly simple idea of having multiple revenue streams makes it even more critical for nonprofits to understand the concept of the time value of money (TVM). 

AskMoney’s guide to TVM explains that the longer you wait to receive money, the more you lose out on lost investments. The value of that money could also decrease. For instance, money that was pledged at a specific time but was eventually given at a much later date could mean that the amount is worth less to the nonprofit—especially in times of inflation. 

3. Ensure everyone’s financial literacy

You should ensure your team is aware of the organization’s financial situation as much as possible. This is so more people can watch out for errors or keep others accountable regarding spending. 

Sharing the responsibility of financial management with everyone instead of having the job fall on a specific person or department alone will reduce the risk of costly financial mistakes. This can be accomplished by having a team-wide meeting regarding the nonprofit’s financial performance and hiring a financial literacy trainer to hold classes on money management. 

Multicultural non-profit organization YWCA USA focuses on eliminating racism, empowering women, and promoting peace. To help manage their finances, they partnered with nonprofit consultants to teach their members—starting with leaders—all about handling money, such as demystifying expenses and revenue strategy.

4. Keep a financial reserve

Unfortunately, financial situations can occur anytime. Auburn University reported that several nonprofits did not have reserve funds before the global health crisis, resulting in dire financial situations. Therefore, setting aside a reserve ensures that the organization won’t tap into personal accounts, reduce staff, or halt services just to save money. 

One way to do this is to have a reserve of about three months’ worth of expenses. The bigger, the better, but three months is a great start. Although if possible, make it a point to grow your reserve as the years go by. Additionally, this can meet your organization’s needs as it expands and help you navigate unprecedented events like a pandemic.

5. Invest in financial management tools

Nonprofit financial management tools make it easier for organizations to streamline, track and manage their finances. Whether it’s accounting software or a bookkeeping kit, your team needs the right tools to streamline and collate your funding sources and help you understand your financial performance over time. 

Another advantage of using financial management tools is that it reduces errors that manual processes can miss. Since you can automate processes like payroll, costly mistakes like miscalculating salaries can easily be avoided.

Having the ability to create a Google Sheets invoice from a template, for example, is also a great way to minimize invoicing mistakes and manage spotless bookkeeping, which is essential for a nonprofit. You can use invoice management software like Yooz to help with minimizing mistakes.

Tools like Xero and QuickBooks Online are great for nonprofits looking to simplify and automate their accounting functions.  

6. Guard your financial resources during crises

In recent times, Inflation has severely affected nonprofits. US News reported that nonprofits are finding it more challenging to fundraise nowadays since usual donors are also impacted by inflation. As such, donor support is slower and less frequent—a big hit to one of a nonprofit’s ways to get funds. Despite this current financial crisis, there are ways that organizations can work around economic crises.

Public research university IUPUI recommends that nonprofits prepare for inflation’s effects by transferring funds into interest-bearing accounts. Another recommendation is to avoid any programming or projects that might require taking out loans, such as renovating the workplace solely for aesthetic purposes. 

Most importantly, nonprofits will need to ensure that they save as much as possible during this period. 

Disclaimer: The information provided in this article does not constitute investment advice, financial advice, trading advice, or advice of any sort; you should not treat any of Keela’s content as such. Perform reasonable due diligence and consult a financial advisor before making any financial decisions.

About the author:

Tobi Nifesi

Head of Content at Keela