Pause and Reflect: Midyear Nonprofit Financial Review

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The middle of the year is the perfect time to pause and reflect on your nonprofit organization’s financial health. A midyear financial review helps you identify problems early and align your nonprofit’s financial performance with planned goals.

Conducting a review is important, but where do you start? Use this guide to help you better understand how–and why–to conduct a midyear financial review for your organization.

Importance of a Midyear Nonprofit Financial Review

Most organizations know the importance of end-of-year reviews, but did you know a midyear review can have similar benefits? Doing a midyear nonprofit financial review provides three main benefits to your organization:

• Accountability and Transparency: Ensuring the organization remains accountable to stakeholders.
• Proactive Adjustment: Identifying and addressing financial issues before they become critical.
• Strategic Alignment: Midyear reviews let you align your financial performance with the organization’s goals and mission.

Each of these benefits helps ensure your organization stays on track to reach its financial goals by the end of the year.

Key Components of a Midyear Financial Review

Your midyear review will likely look very similar to a year-end financial review. This means your review should include all aspects of your organization’s finances–from budgets to grant status.

There are generally four categories you should include in your review:

• Financial Statement Analysis: This helps you analyze revenue, expenses, and cash flow. It should include your balance sheet, income statement, and cash flow statement. Evaluate how your organization is trending compared to prior years. 

• Budget vs. Actual Comparison: This lets you compare your actual financial performance against the projected budget.

• Grant Management: Review the status of grants and compliance with grant requirements or conditions. Ensure restricted and unrestricted funds are being managed properly. Check to make sure you are not over or under-spending.

• KPIs: Evaluate how your organization is performing with it’s various KPIs or goals. For example, if you had intended to grow your reserves, how are you doing? If you want to monitor your expense ratios for each department and function, what is that looking like?

Steps to Conduct a Thorough Midyear Review

Before jumping into the actual review process, you’ll want to prepare yourself for the review. This means gathering all of your organization’s relevant financial documents and reports. For example, you may need to collect the year’s cash-flow projections, budget to actual comparison, and ongoing grant information.

Additionally, you should involve key stakeholders in the review process, such as the board of directors, your financial or accounting teams, and program managers. Bringing stakeholders on board not only increases accountability and transparency but can also open new insights into financial processes during the review.

Once your review is done, it’s important to carefully record your findings and present them to the board of directors. Based on your insights and findings, you can also make recommendations to the board.

How to Complete a Midyear Financial Review

The process of conducting a review may vary slightly between organizations, but the general steps include:

• Step 1: Review financial statements.

• Step 2: Analyze budget variances.

• Step 3: Check compliance with financial policies and regulations.

• Step 4: Evaluate cash flow and liquidity.

• Step 5: Assess financial projections for the remaining year.

• Step 6: Compile results and present findings to the board and other stakeholders.

Common Challenges and How to Overcome Them

You might encounter challenges when conducting your review, so it’s important to know how to overcome them. Luckily, many nonprofits have similar challenges when analyzing their finances, including:

• Data accuracy
• Resource constraints
• Compliance issues

Most nonprofit financial recording challenges, such as data accuracy and meeting legal and grant compliance requirements, can be solved using technology. Introducing technology, such as accounting software, can help your organization stay organized and maintain accurate financial records.

Other challenges, such as resource constraints, may require reallocating or changing resources to fit your needs. For example, if you don’t have time to conduct a review, you could hire an external accounting firm to perform an audit or reduced scope of work.

Using Your Review for Effective Planning

The findings of your review give you a better picture of the financial health of your organization. However, they offer so much more than that alone.

You can use your findings to analyze your current systems and processes to create more effective fundraising, accounting, and resource management. Your review can help you readjust budgets before the end of the year, which could help reduce financial strain or cash flow issues.

Likewise, your review findings can help with strategic planning for the remaining year and the year ahead. You can use your findings to make data-driven recommendations to the board and other stakeholders that can directly improve the financial health of your organization.

Get Started: Plan Your Midyear Financial Review

Reviewing the financial health of your organization helps you stay on track to meet financial goals. It can also be a good way to identify any financial struggles your organization might face. When caught in a midyear review you can address these financial concerns early.

If you’re overwhelmed by the idea of conducting a review, you’re not alone! An easy solution is to work with a nonprofit accounting and financial firm, such as the Charity CFO, to help you organize and complete your review.

The team at the Charity CFO can help you create and implement a plan of attack for your review. We specialize in nonprofit accounting, so you can be sure we understand the complexities of nonprofit financial documents.

Schedule a free call today to learn more about completing a financial review!

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