Updated: Mar 2, 2021
In an industry where mission, clients and impact come first, it can feel difficult for nonprofit leaders to dig into the decidedly less warm and fuzzy world of finances. If you don’t have a good handle on your finances, now is the time to get cozy with all those reports, numbers, and spreadsheets…because your organization - and mission - depend on it.
Too many Executive Directors and Board Members have only a tenuous understanding of how their budget ticks and how they can get smarter about money – from financial management, to fundraising, and budgeting. And, in full disclosure, I have slogged my own way through the morass on many an occasion. But, the reality is, a nonprofit’s capacity to deliver on impact hinges on their ability to build and sustain a resilient financial model. So, let's run through the easiest ways to get any team talking about and digging into finances!
1. Develop a shared language around money
Think about how complicated your own relationship to money is – Does it scare you? Does it control you? Do you struggle to align your own values with spending? Now, think about how many different and possibly conflicting relationships with money exist across your organization – from staff, to leadership, and board members. But, don't let that scare you - there are many ways to start building a shared conversation on money and it doesn't have to be hard.
Start by peppering in collaborative conversations at your team meetings, to test the waters and build safe spaces: in what ways does your organization use money to deliver on its vision; why do your donors give to you; how do staff donate and demonstrate their own values through money, outside of work? Then consider what processes you can put into place to go deeper: high-level financial dashboards at your team meetings, trainings on how to read P&L's, and deep dives on individual budget sections. The goal is to build trust and implement systems to normalize discussions on finances, so that your team can begin working together in managing them (see point 5 below).
2. Go deep
You can’t just set annual targets, divide by 12, and call it a budget (this is probably the biggest mistake I see). If you do not have a 12-month budget that reflects the historical and seasonal trends of your organization AND ties directly to the efforts and investments identified in your annual workplan - then it’s time to dig in.
Every line in your budget should tie directly into an understanding of how you've gotten there in the past and a plan for how you're going to get there this year. If you understand the expectations and efforts behind every cell of your budget spreadsheet, you can better explain the connections among numbers, mission, and action plan to your team, your funders, and your community. You can also more effectively under the best responses when the actuals don't line up with the budgeted vision.
3. Go long
Money and cash flow work on a continuum and a 12-month budget can sometimes keep us in the short term, susceptible to surprises. Build out an 18-month plan that is adjusted annually so that you don’t bump up against unexpected funding/cash flow cliffs at the end of the year.
4. Have a plan to assess and adjust
You and your board can review financials monthly and quarterly. During these assessments, you’re looking to build a deep understanding of why you’re hitting your targets (in revenue and expenses) and why you’re struggling. Not only does this help you make mid-year pivots to your approved budget but it also builds a culture of continual learning and improvement. Bonus points: a continual assessment process helps you to prepare your next annual budget months in advance of approval, rather than rushing to pull it together at the end of the fiscal year.
5. Engage your staff in managing finances, in stages
While there’s a lot of talk about open book financial management, tread lightly into full transparency unless you’ve already spent the time building financial literacy amongst your team (point 1 above). As a starting point, consider clarifying the lines (in both income and expenses) that each staff member and team “own” and then work with them quarterly to evaluate how the actuals are holding up against the budget. As they build their confidence, they can also begin to build their own program budgets and even contribute to board reporting.
P.S. Does your nonprofit need support in assessing and refining your financial model/processes? Grab your free consultation here
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Carrie Ferrence is principal at The Big Lil, where she offers project-based support to grow mission-centered start-up’s, small businesses, and nonprofits. As a business owner, nonprofit leader, and change manager, Carrie knows how to craft compelling marketing and communications strategies; engage individuals & teams; mobilize stakeholder; and design strategies & systems to support and drive change. Whether you need help on a short-term project or a longer -term solution, she's designed rates and services so that she can step in as a partner on your team, not just as an outside observer.