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.

[button link=”https://go.thecharitycfo.com/l/995872/2024-07-05/4l1yx” color=”orange” newwindow=”yes”] Download the Article[/button]

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.

[button link=”https://go.thecharitycfo.com/l/995872/2024-07-05/4l1yx” color=”orange” newwindow=”yes”] Download the Article[/button]

 

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

/in , , /by

Financial forecasting is a term you’ll hear thrown around in the business world quite often—but in the world of nonprofits, it can be difficult (and even downright impossible) to plan your organization’s finances with any degree of certainty. After all, you can’t possibly predict:

  • Who’s going to donate to your organization
  • How much they’re going to donate
  • Even when donations are going to happen

Still, even as a nonprofit, having some sense of what your finances may look like in the future is crucial to your long-term success. The best way to do this is through financial forecasting.

With a better understanding of what financial forecasting for nonprofits entails and how to use financial forecasts to your organization’s advantage, you can work more confidently toward long-term success and sustainability.

What Is a Financial Forecast for Nonprofits?

Specifically, a financial forecast, sometimes called a projection, is an estimation of an organization’s projected financial conditions based on past and current finances. Financial forecasts can then be used by nonprofit organizations for:

  • Budgeting
  • Strategic planning
  • Fundraising
  • Grant applications
  • Even cash flow management

While not always 100% accurate (especially in the unpredictable realm of nonprofits), a financial forecast can be extremely useful when it comes to informing decision-making and mitigating risks.

What is the Difference Between a Forecast and a Budget?

Let’s break down the difference between a fiscal budget and a financial forecast in a nonprofit setting. Think of a fiscal budget like your organization’s financial game plan for the year. It’s set before the year kicks off and includes all the money you expect to come in (like donations) and go out (like program expenses). It’s your guide for how you plan to spend and receive funds, kind of like a financial blueprint for the year’s activities.

Now, a financial forecast is more like checking the financial temperature throughout the year. It’s not set in stone like your budget. Instead, it changes based on what’s actually happening in your organization. Say you get a surprise donation, or an event costs more than planned – your forecast helps you adjust your expectations and plans on the go. It’s a real-time snapshot that helps you stay flexible and make smart money moves as the year unfolds.

Key Components of Financial Forecasts

So, what are some of the key components of a financial forecast for a nonprofit organization? While no two nonprofits will be exactly alike, most should include the following in a comprehensive financial forecast:

  • Revenue projections
  • Expense projections
  • Cash flow analysis

In addition to these key components, there are some basic documents and records that you’ll need to create a financial forecast for your nonprofit. This will include all of your organization’s financial statements, such as:

  • Income statements
  • Balance sheets
  • Cash flow statements
  • Annual budget
  • Any projected fundraising goals (we like our clients to have a gift table that includes specific gifts and when they hope to receive them based on historical knowledge).

Using Financial Forecasts for Nonprofits

There are many ways in which a financial forecast can be used by nonprofits and their leaders to make smarter and better-informed decisions for the long-term success of the organization. 

Let’s take a closer look at some of these areas:

Budgeting

For many nonprofits, financial forecasts serve as a reliable foundation for creating budgets that can help organizations make better use of their funds and other resources. By projecting revenues and expenses, nonprofits can develop realistic budgets that align more closely with their goals and priorities.

Strategic Planning

Nonprofits can also use financial forecasts to gain insights into the future financial health and sustainability of the organization. These projections can then be used to identify potential risks and opportunities, allowing leaders to make strategic decisions regarding things like:

  • Program expansion
  • Fundraising initiatives
  • Resource allocation

Fundraising and Grant Applications

It’s no secret that nonprofit organizations rely heavily on grants and other forms of fundraising in order to keep working toward their respective missions. When applying for a grant or seeking other fundraising options, it is not uncommon for nonprofits to be required to submit a financial forecast in order to even be considered.

Understandably, donors and granting agencies want to see a clear roadmap of an organization’s financial stability and responsible resource management before making a donation. In this sense, accurate financial forecasts can actually help to boost an organization’s credibility while increasing the chances of securing funding.

Cash Flow Management

Being able to accurately forecast cash flow is crucial for many nonprofits, yet doing so can be a real challenge when you can’t always predict when donations and funds are going to come in.

Fortunately, financial forecasting can be extremely useful in more accurately predicting cash flow in a nonprofit. By projecting when and how much cash will be coming in and going out, organizations can more readily anticipate potential shortfalls, manage liquidity, and make informed decisions about everything from investments and expenses to cash reserves.

Need Help with Financial Forecasting for Nonprofits?

When it comes to making more informed and confident decisions for the future of your nonprofit, being able to rely on a financial forecast can be extremely useful. At the same time, financial forecasting isn’t always easy—especially for nonprofit leaders who have other important obligations to focus on.

This is where it can be especially useful to work with an experienced team of accountants and other financial professionals who offer nonprofit accounting and bookkeeping services, including financial forecasting. 

At The Charity CFO, we’ve been trusted by hundreds of nonprofits to assist with everything from basic bookkeeping to financial forecasting and everything in between. Our philosophy is that when you don’t have to worry about the books, you can focus more readily on what matters most: pursuing your nonprofit’s mission.

Interested in learning more about our nonprofit accounting services? Get in touch with our team today. We’d love to learn more about your organization and help you determine which services may be best for your needs.

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

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.