Financial Management: Four Tips for Small Nonprofits

In this guest post, Jon Osterburg of Jitasa, drives home the impact of effective financial management on your revenue generation and, more importantly, overall organizational health and social impact. Principle 8 of The Eight Principles®: Invest, Integrate & Evaluate™ is front and center.

Growing nonprofits often feel the pressures that accompany small budgets and big ideas. Your nonprofit wants to make the greatest impact possible in the community but accessing the funding to do so can be incredibly frustrating. 

Principle 8 of The Eight Principles® is Invest, Integrate & Evaluate™.  Effective and strategic financial administration is critical to long-term success.

When finances are unorganized, even nonprofits with the best intentions end up wasting money on unnecessary purchases and improperly allocating their funds. These poor financial decisions are wasteful and can hold your nonprofit back. 

You need to find ways to maximize your nonprofit’s finances. By implementing financial organization strategies, your organization can better manage your money and do more with less.

In this guide, we’ll cover four tips that your organization can use to better manage your finances for growth and greater impact. We’ll cover the following: 

  1. Craft an annual budget. 
  2. Organize your finance system. 
  3. Stay accountable to supporters. 
  4. Make the most of fundraising appeals. 

Let’s dive in to discuss how you can unlock the benefits associated with better financial management. 

1. Craft an annual budget. 

When you’re getting your personal finances under control, you create a budget to live by. The same is true for your nonprofit. By creating a budget, you can estimate the amount of money you have coming in from various sources and how much you anticipate spending on various programs, campaigns, and activities. 

Jitasa’s nonprofit budgeting article explains that nonprofits generally use two types of budgets: 

  • Operating budget. Your operating budget breaks down your annual projected revenue and expenses. This is your working budget for the fiscal year. 
  • Capital budget. The capital budget breaks down the revenue and expenses associated with long-term, multi-year projects and campaigns. For example, a capital campaign may stretch longer than a year, so you’d include these financial details in the capital budget. 

Generally, your operating budget will be the budget you refer to on a regular basis. However, it’s good to keep both of these budgets in mind when you go to craft your own. When you compile either budget, be sure everything is:

  • Defined. This means you’ll include details about how money is spent such as, “to purchase computers for an underprivileged school.” 
  • Time-based. Generally, your operating budget covers the entire year, but you might decide to make notes about when various activities occur, such as the month of specific fundraising events. 
  • Measurable. Concrete numbers are the key to successful budgeting. If you estimate that hosting a certain event will cost “around $600,” the word “around” makes it too variable. But, if you take it a step further and start considering the costs of the event (venue: $300, catering: $250, decorations: $100), you’ll find that the event will cost $650.

When you make your budget, keep in mind that fundraising is seasonal. You might find that you have more income during your year-end fundraising campaign. That money might need to carry throughout the year and help your organization maintain programming through slower summer months. So don’t spend it all too quickly! 

Limit the seasonality of your fundraising by driving your sustainable monthly donor fundraising program. This will help ensure your budget will last throughout the year by giving you a consistent source of revenue. Plus, monthly giving is more predictable, helping make your budget more accurate. 

2. Organize your finance system. 

Many small organizations start managing their finances through spreadsheets. While this is a fine way to get started, spreadsheets are very susceptible to human error and break easily. In order to better manage your nonprofit’s funds, invest in software that is designed to help 501(C)(3) organizations. 

For instance, Quickbooks’ nonprofit-specific solution allows organizations to leverage fund accounting to organize and manage finances. All of your funds and accounts are centralized in your chart of accounts, and reports and statements are pulled from there for accounting professionals to read and analyze. For example, an accountant may pull any of the following financial statements: 

  • Statement of cash flow. This report shows how cash flows in and out of your organization so that you know how much liquidity you have at any given point. 
  • Statement of financial position. This report is where you analyze your financial assets versus liabilities, helping gauge the financial health of your nonprofit. 
  • Statement of activities. This report is used to characterize the different sources of revenue and expenses at your organization, showing how they change over time. 
  • Statement of functional expense. This report breaks down your expenses into common expenditures, showing what activities your organization spends money on. 

While spreadsheets are fine to get started, deeper insights can be drawn when you can easily pull reports such as these on a regular basis. This will help you scale up as an organization! Make sure you keep your software system clean by combing through it to clean up any typos or ledger errors. Even if you need to clean up your system on a regular basis, you’ll still save time when compared to trying to scale with spreadsheets.

3. Stay accountable to supporters. 

Nonprofit finances are unique in that the money isn’t used transactionally as it is in the for-profit world. Supporters who donate are giving to charity and expecting nothing (or little to nothing) in return. That money is meant to be completely reinvested back into the organization and the cause supported. 

Therefore, it’s your obligation to stay accountable to those who donate to your nonprofit. Show them the impact you’re making with the money they generously provide.

There are some built-in ways that you can remain accountable to your supporters, such as filing your annual nonprofit tax form. The Form 990 is a publicly available document that any supporter can view online to see how you’re leveraging your finances to support your mission. Consider increasing transparency with supporters by publishing this document directly on your website, providing it quicker and easier. Then, take transparency even further with the following steps to help your nonprofit increase financial accountability with supporters: 

  • Create an annual report to provide to supporters. Your Form 990 is very quantitative and provides lots of data, but very little story. A nonprofit annual report provides the opportunity to help that data say more. Tie your financial numbers to the achievements throughout the year with an engaging annual report. 
  • Include impact statements in appreciation letters. When you send letters of appreciation to your supporters, be sure to include a statement about what their gift will accomplish. This ties their contribution to a tangible benefit for your mission. 
  • Publish outcomes from your programs. When you wrap up a program (or simply every quarter or so), publish the outcomes from your programs for your supporters to see. This shows them that you’re using their funds responsibly to advance your nonprofit’s mission. 

As the lifeblood of your organization, you need to be sure your supporters are kept informed, happy, and in-the-loop about your various financial decisions. The fund system of accounting helps you keep everything organized so that you can honor any restrictions placed on donations or grants that fund your organization. Make information donor-centric, showing supporters how important they are and the part they play in the accomplishments of your organization. 

Sometimes, keeping your nonprofit’s financial information to yourself, even if you have nothing to hide, comes across as shady. You can prevent this by being proactive in your organization’s stance on accountability and transparency. Start with your finances and show supporters that you’re responsible with their contributions. 

4. Make the most of funding opportunities. 

When you have more funding, you have more responsibility to manage the money your nonprofit receives. However, you are also able to do more with that funding, increasing your impact and expanding your organization. 

Once you’ve established some basic skills managing your finances, you can expand your funding further and scale without issues. Therefore, start with your low-hanging fruit to find new funding opportunities. For instance:

  • Appealing to volunteers. Volunteers are more likely to contribute to your organization than the average person. They’ve already shown passion and dedication for your cause. Appeal to those who have not yet contributed to your nonprofit and ask them if they’d be willing to contribute to increase their impact. 
  • Identifying matching gift opportunities. According to 360MatchPro’s matching gift statistics article, around 18 million individuals are eligible for a matched gift from their employer. Reach out to your supporters and encourage them to check their own eligibility. Matched gifts are essentially free money, so be sure to collect it! 
  • Encouraging monthly giving. Monthly giving is often more lucrative than one time donations (and more sustainable). If a donor regularly gives $100 annually to your nonprofit, ask if they’d be willing to contribute $10 per month instead. The resulting additional $20 will help further fund your organization and it’s easier on their wallet. 

Not every fundraising opportunity needs to be a brand new campaign. You can make more money and expand your opportunities through existing pipelines as the examples above demonstrate.

Then, you’ll have more funding to expand your programing, host more fundraising opportunities, and continue providing additional support to your community. 

Financial management is the key to unlocking new growth opportunities at your organization. When you plan more effectively, stay organized and transparent, and capitalize on existing fundraising opportunities, you’ll have the tools you need to better allocate resources. Then, you can expand the aspects of your organization that most need it. 

By leveraging the tips in this guide, you can better identify unnecessary expenses and reallocate funding to more essential activities.

Jon Osterburg has spent the last nine years helping more than 100 nonprofits around the world with their finances as a leader at Jitasa, an accounting firm that offers bookkeeping and accounting services to not for profit organizations.