The 10 Most Important Financial Priorities for a Nonprofit Organization
Proper financial management of a nonprofit organization is more than an simple checklist, but adopting these ten basic philosophies will make compliance with policies more natural and allow you to recognize financial failures sooner, rather than later.
- Remember the mission. The mission must be a top priority. This is especially true for financial policy, budgeting, allocation of resources, and, when necessary, budget cutbacks.
- Remember loyalty to constituents, organization and donors. All financial decisions should serve constituents, be true to the organization, respect the wishes of donors and requirements of granting organizations.
- Be an engaged Board Member. The day of the “honor board” is gone. Board Members are selected for the talents they bring “to the table.” If you cannot commit to regular meetings and regular participation in the life of the organization, you should respectfully resign and make room for an active replacement.
- Develop basic financial literacy. Understand basic terms, be able to find “income” and “expense” information and know how to ask questions about financial performance of programs. While financial genius is not required, ALL Board Members should have some basic understanding of the financial picture of the Nonprofit.
- Establish and USE financial controls. Assume mismanagement or fraud CAN happen to your nonprofit. Financial controls protect both the people handling the money and the organization. A high level of oversight and control fosters a high level of public confidence and less opportunity for mismanagement or fraud.
- Insist on regular financial reports and accurate record-keeping. By definition, nonprofits are a “public trust” held to a higher standard of care than a for-profit business. Regular reports and accurate record-keeping, including balancing the checkbook register, comparing current financial information with current budgets and previous years’ activities, are vital to the fiscal health of the nonprofit.
- Be a model of ethical behavior. Nonprofits are held to a higher standard of ethics than other organizations. The mere appearance of a Board Member conflict of interest or self dealing stance can ruin a nonprofit’s credibility. Act appropriately and document all financial decisions in meeting minutes.
- Obtain professional advice when needed. Legal and Financial professionals are wise investments. They will help prevent financial crisis and provide options if financial crisis is approaching.
- Pay Applicable Taxes.The IRS and your State Department of Revenue are the worst creditors you can have. Failure to timely file required paperwork and pay taxes (particularly employment and sales taxes) can be a costly mistake. Engage professionals to help you implement procedures that prevent tax failures.
- Regularly review and assess the financial situation. Conditions change quickly. Financial plans should be reviewed regularly to be sure that they are being implemented and are still helpful and relevant. Periodically ask a (qualified) tax or legal professional to review your policies against current industry practices. Compare notes with other like nonprofits to see if they have better procedures that you adapt for your use.