Nonprofit leaders have a lot on their plate. Not only do they have to make sure that their organizations are running smoothly and properly, but they also have to meet government and private donor requirements for financial reporting and spending. Accounting software for nonprofit organizations can help nonprofit leaders effectively manage their organization and their donors’ demands. It can help nonprofit leaders develop effective financial practices and maintain them for the long haul. Accounting software for nonprofit organizations can give nonprofit leaders a clear view into their organization’s financial records, which – in turn – will allow leaders to make better decisions for the organization as a whole.
The right accounting software for nonprofit organizations will enable nonprofit leaders and employees alike to develop and sustain the following best practices for nonprofit financial management:
- Create an annual budget.
Without an annual budget in place, nonprofit organizations have no idea what their expenses are compared to their income (i.e. donations, grants, etc.). Proper nonprofit financial management involves creating an annual budget and sticking to it as much as possible. The best budgets align with the organization’s annual plan, which details the organization’s annual goals, new projects, etc. and how they will be financed. The annual budget should include both guaranteed and as-yet-unidentified income; however, the Board and nonprofit leaders should be aware of the amount of unidentified income in the budget along with the plan to raise funds during the year.It is important for nonprofit leaders to reevaluate and question budgeted expenses throughout the year, particularly if the year’s financial goals fall short. The annual budget is supposed to be a plan created to reach a financial result, not to be a plan set in stone. By constantly revisiting the budget and budgeted activities, nonprofit leaders will gain an understanding of the organization’s financial standing, more effectively distribute funds, and plan for fundraising efforts throughout the year.
- Make cash flow a priority.
Nonprofit leaders need to place an importance on cash flow and cash flow projections. Most financial reports document spending trends from the past, making it easy for nonprofit leaders to review and analyze their financial habits and prepare for the future. Nonprofit leaders need to know how the organization’s cash flows and to address instances in which cash does not flow. Unless the organization has a substantial amount of cash build-up, any nonprofit can run into cash flow problems.Cash flow projections often require more knowledge and insight than the accounting department has. Due to this, nonprofit leaders need to have a role in developing cash flow projections. Anticipate cash flow issues and formulate a plan to solve potential cash flow problems. Keep in mind that timing problems can often be prevented by properly managing the timing of payments and receipts, improving internal systems, and arranging for a line of credit. Managing cash flow is not a one-time occurrence, and leadership needs to be prepared to make budget and other necessary adjustments to solve cash flow issues.
- Don’t rule out grants that require restricted funding.
While restricted grants are definitely more complicated and require more reporting than general grants, nonprofit organizations should not completely rule out accepting restricted funds. Rather than looking at the restriction as a whole, look at what the grant is restricted to. A restricted grant for a program central to your organization’s desired impact and that meets a substantial amount of that program’s cost is no different than a general grant that would be used to support the same program.If it is funding a program essential to your organization’s mission, accepting the restricted grant would be in your best interest. If the grant pulls you in a different direction than you’d like to go or deviates from your organization’s mission, you’d be better off without it.
- Hire a team capable of handling the organization’s financials.
Your financial team is critical to the success of your financial management efforts. Make sure that you have the right team to manage your financial records in your organization’s accounting software. If you do not have the desired team, hire them. Make sure that your team consists of people who know how to handle a nonprofit’s finances and the restrictions that it brings.
The above best practices will only get you so far. In order to manage your finances properly, you must have invested in accounting software for nonprofit organizations. If you are looking for a new solution or you need helping modifying an existing solution, contact the team at RBP Methods today.