Blog | Academy for Nonprofit Excellence - Tidewater Community College -

Anatomy of Nonprofit Financial Management

February 10, 2017

By: Leon Seemann

Each time I begin to work with a non-profit, I am inevitably confronted by one or more managers that emphasize with me that it’s all about people. They will “teach me” that without good people in place, delivering the services that the community needs, they couldn’t exist.

I never argue with them on this point.

Instead I ask them:

  • How often do you have a problem meeting payroll or paying vendors on time?
  • When was the last time you had an operating surplus?
  • How do you know if you’re spending the organizations money on the right things?
  • Do you have realistic fundraising goals?

Usually, one or all of these questions will elicit a furrowed brow.

People who serve in non-profits are generally deeply embedded in the mission of their organization. Likewise, the leaders of these organizations often came up through the ranks. They were promoted for being the best at delivering the services their non-profit provides. As a result, most non-profit leaders have little or no formal training in financial management, creating a constant source of stress and crises.

Non-profits have a very different focus then their corporate counterparts, but that doesn’t mean they have to eschew basic best business practices to prove they aren’t a corporation.

In fact, today’s philanthropists are insisting on an even higher level of accountability. They come into meetings asking about KPI’s and insisting on clear ROI’s for their philanthropic investment.

Non-profits no longer get the benefit of the doubt in our increasingly cynical society.

The good news is the basics are not that difficult and most people can learn them. These include creating an accurate budget, producing reliable financial reports, and using dashboards.

The budget is a numerical representation of the organization’s aspirations. It conveys to the stakeholders what the goals are for the coming period, both in terms of the services to be offered and the source of the revenue to meet those goals.

The financial reports give an on-going measurement of success (or failure) and stability of the organization. Over time they create a story of an organization’s trajectory.

The dashboards are critical to ensuring the board of directors and executive staff are focused on the correct indicators of success. They give a common vocabulary and the ability for reacting quickly to problems as they arise.

When done well all three of these elements will tie back into the mission of the organization and reinforce the work of the staff. Wise non-profits no longer view investing in good financial management as taking resources away from programs. They understand it is at the center of successfully fulfilling the mission.