The Nonprofit Finance Fund recently launched the annual results of their State of the Nonprofit Sector Survey. First, the bad news – 86% of nonprofits see demand rising, yet 57% are worried they cannot meet it. Many of the nonprofits (62%) say their top challenge is sustainability. But, there is a silver lining – 68% of nonprofits are collaborating with others and 63% plan to expand their programs.
I recently asked my longtime friend and colleague, John Gillespie of Charles River CFO, about this very question and we had a great conversation that resulted in today’s blog. Collectively, we have worked with 200 clients in the social sector. Every day society asks more of nonprofits, but they are often constrained by their existing resources. Society asks them to be “sustainable” but stops short of defining sustainability or giving CEOs and boards the tools to decipher where they are and how they compare to other organizations. Both Social Impact Architects and Charles River CFO share the same belief – we need to make it easy for nonprofits to do their jobs. With that in mind, we have developed a comprehensive tool for staff (e.g., CFOs, CEOs) and board members (e.g., finance chairs) to diagnose the health of their organization’s financial management. We encourage the board and management team to review the matrix and evaluate progress – as a financial check-up for its organization. Then, develop a list of priorities and an action plan for each area.
As with any check-up, we have major systems that need to be tested and sometimes recalibrated:
Budgeting & Planning
Think of this like your brain – your strategic plan guides your organization. Taking the time to build a detailed, bottom-up budget forces you to think through operational and programmatic issues. Translating the strategic plan or annual plan into a budget creates an economic language that clarifies where you are and where you want to be. Done correctly, it creates an economic roadmap to guide you and show you what you need to accomplish to reach your destination and allow you to recalibrate if you get detoured.
Think of this like your blood pressure – timely and accurate financial management lets you keep a pulse on revenue and expenses. The confidence in those numbers being right gives you the ability to make financial impact decisions when needed (i.e., can we afford that new staff person; can we spend more money on marketing, etc.)
Reporting & Monitoring
Think of this like your annual check-up – department income statements and budget-vs-actual reports let you measure how the organization is doing. By assembling this information into dashboards and reviewing at least monthly, it puts these numbers into perspective, which allows you to make mid-course corrections as needed.
Think of this like your doctor – the board is your partner and the board treasurer and your finance/audit committee members are your economic advisors. You’re both rowing in the same boat, headed in the same direction … forward. Partners have frequent and ongoing communication, find ways to leverage each other’s skill sets, share financial information and jointly manage risk.
As we often say to our clients, “Without money, there is no mission.” This is why the financial health of your organization is one of the most important areas to monitor and adjust when circumstances change. We hope this tool helps provoke real conversations within nonprofits about how to build healthier organizations that can rise to the challenge of creating sustainable social impact. If you have specific questions, we would love to hear from you! The teams at Social Impact Architects and Charles River CFO will be collecting them and putting together a future Q&A blog addressing common issues.