Tag Archive for: nonprofit finances

Pause and Reflect: Midyear Nonprofit Financial Review

/in , /by

No time to read this article now? Download it for later.

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.

Nonprofit financial review

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. 
  • 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.

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.

Nonprofit financial review

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!

No time to read this article now? Download it for later.

 

What is Financial Forecasting and Why Does it Matter to Nonprofits?

/in , , /by

Having a sense of what your finances may look like in the future is crucial. The best way to do this is through financial forecasting.

Read more

Taking Control of Your Nonprofit Finances

/in /by

Today, you might feel there are few things you have control over. Fortunately, taking control of your nonprofit finances is not one of them.

Since the novel COVID-19 pandemic has forced the world into a remote economy, nonprofits face a time of financial transition.

91% of global nonprofit organizations suffered operational damage in the crisis. This 91% is an improvement from the 96.5% recorded in March.

Waiting for normalcy is only a long-term solution that many organizations can’t afford. However, learning how to transition into a new normal can help your organization get back on its feet.

Understanding how to manage your finances is the best path to regaining stability. Here’s how you can start taking control of your nonprofit finances sensibly and effectively.

Taking Control of Your Nonprofit Finances

It’s important to consider how money transfers through different hands within your organization.

A board of directors should oversee general operations. An added financial branch of operation can still go a long way. Delegate financial tasks to a specific individual or group of individuals. That way, you centralize the information handled in the accounting process.

Along with financial managers, you can outsource your accounting tasks. Getting professional advice is a much more efficient way to get your finances in order.

Nonprofits that manage finances internally can appoint at least 2 or 3 people to manage. They can be direct points of contact between the organization and the finances.

You can also assign different functions to those in your financial branch. One member can manage executive functions while supporting members manage secondary tasks. This structure promotes organization, accountability, and transparency within your financial branch of operation.

Multiple Streams of Funding

Adding more streams of funding to your organization is essential to financial balance. Receiving support from more than a few sources adds to the revenue to collect.

It also adds more financial security. Instead of relying on one funding source, you open up more opportunities.

Collective revenue from various sources adds up and gives you more stability. If one stream dries up, you’ll still have the flexibility to focus on others in times of need.

Relevant Streams of Funding

While you grow more streams of funding, you should also make your sources relevant to the times. Prior to the pandemic, common sources of funding for nonprofits included:

  • Sponsorships
  • Grants
  • Programs tuition
  • Fundraising Events
  • Donations
  • Subscriptions

Nonprofits that focus more on in-person fundraising should consider more reliable funding sources.

Instead, there are more reliable, contactless methods of funding. These include sponsorships, grants, donations, and subscriptions.

Sponsorships and grants often involve some research and individual outreach. The scope of their awarding processes also requires waiting periods and gaps. Still, they’re useful sources to consider for long-term operations.

Tracking Expenses and Profits for Taking Control of Your Nonprofit Finances

Multiple streams of funding ensure that money flows into the organization.

This is a two-way stream. It’s possible for cash to flow out of an organization at a high rate.

Tracking the expenses shows you funds entering and exiting the budget. Your financial branch tracks expenses and two-way cash flow. The board of directors advises the active spending goals and habits.

The board and financial managers should meet on a regular basis. Your budget and the size of your organization should determine how often you meet.

It’s also helpful to automate some of the tracking process through software. You can use tools like Quickbooks or GetApp. Tools like these will allow you to begin taking control of your nonprofit finances.

These have specialized features for nonprofit organizations. They can also help you with the distinction between nonprofit and commercial operations. Many softwares also include tax forms and documents. You can use these to help your organization with legal compliance guidelines.

Basic Budgeting

Your organization should use budgeting to inform the other areas of financial management. Here are two basic budgeting tips to follow.

Budget Structures

Each nonprofit should have monetary goals relative to their operational goals. There are three main budgeting structures every nonprofit should know:

  • Surplus budget
  • Balanced budget
  • Deficit budget

These structures are often used in government or commercial spending. They’re useful guidelines to help you estimate profit margins and losses.
When your fundraising efforts exceed expectations, you have a surplus budget.

A balanced budget indicates the expenses are expected to meet profits. In contrast, a deficit budget means that expenses exceed profits. So, there’ll be a margin of lost funds to recover.

Your total budget operates within these structures. As you continue to fundraise, you can determine which type of budget your organization currently operates on.

Budget Timelines

A budget should also include a realistic timeline for specific goals. Be sure to include important landmarks in the year where you need to measure performance.

You can split the fiscal and calendar years into quarters to make goals more realistic. Then expand to an annual timeline to measure more long-term growth.

Board meetings should also align with your timeline of goals. Or, you can increase their frequency to keep up with constant changes.

Taking Control of Your Nonprofit Finances: Outlining Policies

The most important step in financial management is documentation. This includes recording tangible copies of your budget, funding sources, and financial goals.

However, you should also consider implementing or updating your operational policies. This includes spending and investment policies.

Updating your policies may crossover with budgeting. Typically, a budget tends to represent your organization in numbers. A policy shows the larger investment potential.

The content in your policy may also intersect with legal guidelines. For nonprofits, these guidelines often determine eligibility for certain funding opportunities or methods.

Manage Your Nonprofit Finances Now

Financial health is an essential part of any nonprofit organization. We can show your organization how to weather the storm and become financially resilient.

With our team of experts, you can get professional accounting and bookkeeping services. We’ll tailor your financial services to the needs of your organization.

To begin taking control of your nonprofit finances today, contact us, and request a meeting.