The Secret To Better Nonprofit Financial Management

by | Aug 24, 2022

Managing a nonprofit’s finances is not a one-person job.

Sure, your financial team– your bookkeeper, accountant, and CFO (if you have one)–take the lead role in managing your finances. But keeping financial responsibility “siloed” within the accounting team is both dangerous and ineffective.

The high-performing organizations we work with all ensure that nonprofit financial management is a collaborative effort. So what does that look like? And how can you get started?

Let’s look at a straightforward way to get your team more involved in your overall financial picture.

Assign each department responsibility for their own budget

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The fastest way to get your team more involved in your financial success and improve their financial skills is to give them direct responsibility for their department’s budget.

You can even break it down further and give individual program managers responsibility for the budget of their program or programs.

By doing this, you ensure that the department head or program leader will understand the primary funding sources and revenue assumptions that impact their area of responsibility. It’s amazing how much their perspective widens when the money doesn’t just “magically” appear when they need it.

Plus, it ensures that they’ll also keep a closer eye on expenses. If they know they have a specific, limited quantity of cash available, they’ll be more prone to make intelligent spending decisions to save the money for where they need it most.

And when they don’t have enough money to meet their goals? Suddenly they’ll be much more motivated to think about creative ways that the fundraising team may be able to get them the support they need.

Include your team in the budgeting process

Including your team members in the financial budget process is critical to better nonprofit financial management. It helps them to think critically about how and when they’ll need specific resources. And it reinforces the need for each department to understand its revenue goals and be held accountable for them.

It also gives them a sense of control and empowerment that motivates them to perform at their best. Rather than feeling like a powerless cog in the machine, your employees suddenly understand that they can make decisions as long as they stay within agreed-upon limits.

Empowering your department leaders to be self-sufficient will help you to avoid wasting time micromanaging areas that don’t need your attention. If you’re battling founder’s syndrome, it can be hard to hand over the reins to your team, but doing so is imperative for your organization’s long-term health.

Keep leaders involved in managing finances day to day

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Once the budget is complete, your team members must continue to play a key role in financial oversight as revenue rolls in and expenses are paid. 

In other words, department leaders should keep tabs on the funding coming into their specific department. And they should also review invoices and credit card charges to ensure they are coded or categorized correctly to correspond to their program and its respective grants. 

 “But isn’t that the accounting department’s job?”

Not really. Nobody should understand the intricacies of expenses and revenues better than the department director. Having your department heads take the lead on this critical task keeps them “in touch” with expenses as they occur, helping to avoid accounting “surprises” at month end when they review their budget update. 

Plus, it reduces the “busywork” workload on your accounting department and correct coding and more accurate bookkeeping from the start. Monthly reviews become less about catching miscoded transactions and more about focusing on where things didn’t go according to plan. 

And hold managers accountable to monthly plans

If your team members participate in creating and maintaining the budget, it’s much easier to hold them accountable for ensuring money is spent in line with their assumptions.

You should review the department’s performance monthly when the financial statements are published. Ask critical questions about why they didn’t meet revenue goals or why they overspent their revenue goals.

The goal isn’t to chastise or make them feel like they’ve failed. Instead, taking the time to review these numbers together lets them know that their department’s performance matters to you. And they will eventually start putting more effort into holding themselves accountable for the organization’s financial success.

Effective nonprofit financial management is a team effort!

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A nonprofit leader once said that the accounting department functions similar to a home cleaning service. For the service to do its job effectively, you’ve got to do some of the initial groundwork. 

Similarly, your accounting department can do its job effectively and efficiently only when everyone chips in and does their part. In other words, every team member in a nonprofit organization shares some responsibility for financial oversight.

If you or your team members lack the basic financial literacy to play their part, getting them up to speed is not that hard. We created a Free Masterclass in nonprofit finances and reporting to help you get up to speed. Click here to enroll in the Masterclass now to ensure you can play your part in your organization’s financial success.

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