Questions to Ask to Improve Your Financial Management
One of the most difficult challenges in financial management is for the board to focus on sufficient detail to be thorough and strategic without being drawn into insignificant and distracting detail. Regularly ask yourselves these questions:
- Can we convincingly prove to donors and to ourselves that our spending reflects our priorities?
- How well do we stick with our plans and priorities and did our spending reflect the spending expected in our approved budget?
- What events might force us to deviate from delivering on our priorities this year and next?
- How can we curb spending mid-year if our contributed income fails to meet our goals?
Click here for additional questions a board can use to fulfill its oversight obligations without micromanagement. Email us with your suggestions for ways for boards to be thorough while staying at 10,000 feet!
Need more? Read how we can work with you or present a workshop to hone these ideas.
Unfamiliar terms? See our glossary.
Excerpts from Linking Mission to Money
The board has year-round duties in advising, approving, and monitoring a budget. This link from Chapter Five Reviewing Priorities provides a suggested annual checklist and schedule for your board's duties.
Board financial oversight should focus on these top four priorities for regular board attention. Click here for an excerpt from Linking Mission to Money.
Articles of Interest Concerning Financial Management
Where should nonprofits store money? is a brief guide to the options available for nonprofits to invest their cash. It describes situations in which funds should be in short-term investments that have little or no risk to principal.
Law brings temptation to fund management highlights the major changes brought about by the new fiduciary standard for endowment management, the Uniform Prudent Management of Institutional Funds Act, or UPMIFA. As of August 2009, virtually all states have enacted or introduced variations on this model legislation.
Should we permit nonprofits to be the provider of last resort? discusses unfunded government mandates and the implications if nonprofits pick up the funding burdens of services that traditionally have been provided and paid for by government.
Sustaining nonprofit groups moves front, center with sector's backers discusses an emerging sense among donors that some changes in how philanthropy works in the U.S. are necessary to relieve the stress on nonprofits from the pressure to address critical social issues so rapidly that the volume of service overwhelms many nonprofits' capacity.
Managers need an effective tool kit with questions they can routinely ask explains that, as a manager moves up in the organization, asking the right questions becomes the dominant tool to use to manage effectively.
Nonprofits must ensure there's cash in reserves for unexpected bills discusses why it is important for boards and donors to understand the critical role of unrestricted cash reserves to the stable provision of a nonprofit's services.
Reviewing a nonprofit's cash position heads off trouble, helps planning identifies the key questions every board should ask to ensure cash problems do not compromise the organization's mission.
Keeping members active, involved stimulates board discusses four keys to running an effective board meeting.
Fixing accounting isn't enough to deter scandals argues that tighter internal reporting is essential in order for boards to see problems before they become crises.
What financial statements can never tell a director provides useful suggestions on ways to probe beyond what financial statements report.
What a nonprofit's board should do with a budget discusses the benefits of the strategic perspective that boards can bring to the budget.
Nonprofits wouldn't be around without profits explains that what separates tax-exempt organizations from taxable organizations is not whether they earn profits, but how they spend their profits. If a nonprofit always loses money, it will fail, no differently than any company will fail.
Improving culture of board aids nonprofits in long run notes that good boards in the nonprofit sector require a proactive discipline that market forces tent to impose automatically on a business board.
Nonprofits poorly treated by restrictions on funding discusses the unforeseen burdens of donor restrictions and how they may actually weaken the financial sustainability of a nonprofit.
Other Resources
There are over 30 types of tax-exempt 501 organizations. Click here for an excerpt summarizing the types of organizations, forms to submit to attain tax-exempt status, types of allowable contributions, and annual IRS reporting requirements.
Any organization with employees must comply with a wide range of labor laws. Here is a simple, but unofficial list of labor laws applicable to your organization as you grow in size.
A fiduciary duty of all nonprofits is to
provide information and education to employees on their defined contribution retirement options, whether it is through a 401(k), 403(b), or other program. See this Chronicle of Philanthropy article on fiduciary duty as well as this
well-regarded website full of useful 403b information for nonprofit boards, managers, employees.
The concept of sustainability has its roots in the governmental sector's concept of structural balance. This 1994 article, Budgeting for Structural Balance, is a good summary of a concept that is now taken for granted by the best state and local governments.
The stresses on the state and local sector over the past twenty years have led to excellent work on financial management. The work of the National Advisory Council on State and Local Budgeting remains among the best resources currently available to guide any nonprofit looking to manage better. See especially the Framework for Improving Budgeting.
A theme in many of our Focused Discussion workshops and articles under the Institutional Advancement tab is the relative weakness of nonprofit balance sheets compared with similar-looking for-profit balance sheets. One source of this weakness is the inattention of many nonprofits to their capital structure and acceptance of restricted gifts and how the two practices together can result in capital-strapped organizations focused on short-term fundraising at the expense of long-term sustainability and innovation. Click here to read a seminal article by Clara Miller on the importance of capital structure with a special box on "Capital-Savvy Principles for Grantmakers."
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