Nonprofit Financial Management Tips: Mitigate Funding Instability Risks

nonprofit financial managementWhen it comes to nonprofit financial management, funding instability is a risk that organizations must face. In an election year, when new members of congress and a new president tackle revising the annual budget, there’s a real risk of grants and other funds being discontinued. Weathering periods of funding instability and forming an action plan to handle them is vital for healthy nonprofit financial management.

A key to managing your funding is using nonprofit fund accounting software that helps you track and manage funds. At RBP Methods, we can help you find the right software to manage funding instability and provide insights into your nonprofit financial management. Contact us today for more information.

Impacts to Funding: Fear of the Unknown

One of the biggest impacts to the nonprofit financial picture is the effect of fear of the unknown. As a new group enters Washington and your state’s capital, donors may tighten their purse strings out of fear of the unknown. Will the new government raise taxes, which affects disposable income used for donations? Or will they shrink grants and budgets for activities that support our nonprofit’s work?

These and other unknowns can cause donations to fall, and to create a feeling of uncertainty.  It is better during such periods to act prudently and cautiously when enacting new projects that require funds. Instead, focus on balancing your funds so that fear of the unknown won’t cause funding instability that can hurt your organization’s ability to serve its mission.

Trends in Nonprofit Organizations

In the near future, the swing of the pendulum from progressive to conservative ideals means that the focus changes from mobilization to intervention. In other words, instead of mobilizing resources to deal with existing problems, the emphasis shifts to preventing societal problems in the first place.

Nonprofits can counter these changes by shifting their project emphasis along with the societal shifts. Organizations that have proactive projects may feel less funding instability effects than those that merely mobilize after problems hit a community.

An animal shelter, for example, may find better success funding spay-neuter programs, which prevent pet overpopulation, than securing funds to build new animal shelters.

Such a shift in emphasis doesn’t have to mean giving up your mission. It means shifting the focus of your work to different projects that still serve your organization’s missions. Flexible nonprofit financial management means aligning projects to your mission as well as to current financial realities so that all may continue to be served.

Methods to Prevent Funding Instability

Although you cannot predict the outcome of an election, nor can you predict the ebb and flow of the general economy with any accuracy, you can take steps to prevent funding instability. Such steps include securing a reliable source of funding outside of government grants and keeping a close eye on your programs.

  • Regular giving: Establish donor programs that offer monthly support. Examples include child welfare organizations that accept monthly donor pledges to sponsor children. A small monthly donation from many individuals can equal a steady funding stream that can continue to fuel your good work during periods of funding instability.
  • Charitable donations: Charitable donations in the form of gifts in a will or trust are a great source of secured funding for nonprofits. Create programs that encourage charitable donations through wills, trusts, and other gifts.
  • Program reviews: Review your programs regularly, especially during periods when the economy or the government is undergoing a radical shift. Now is the time to proactively cut back on excess spending when you can realign priorities with your mission.
  • Diversification: Just as diversification in personal wealth management helps prevent loss during periods of economic uncertainty, diversifying your organization’s income streams can help prevent periods of financial instability from wreaking havoc on your organization. Avoid relying on a large grant or similar sole funding source and instead seek multiple income streams to fund projects.

Although you cannot avoid all uncertainty, you can take many steps to mitigate the effects of funding instability. Nonprofit financial management includes taking proactive steps to prevent cash flow upheavals. Your constituents depend on it.

RBP Methods: Advice You Can Trust

At RBP Methods, we care deeply about our clients’ success. Manage your finds wisely with software for nonprofits such as AccuFund Grants Management, Abila MIP Fund Accounting, AccuFund Accounting Suite, and many others. We offer financial management, fundraising solutions, and grant management software, as well as nonprofit financial management software and consulting to help you choose the right software solution. For more information, visit our website or call 503-648-9051.