Three Tips for Responsible Financial Management of a Nonprofit

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Maintaining the financial wellbeing of a nonprofit is often at the front of managers’ minds. Fundraising sources are not always consistent from year to year, unforeseen expenses can cause sudden strain, and ambitious goals may not align with financial realities. Nonprofit boards can take a number of steps to tighten up the financial management of their organizations, including these:

  • Adopt clear financial policies.

The first line of an organization’s financial defense is made up of the people with authority to spend money and, perhaps more importantly, create obligations for the organization. By adopting a clear policy about who has authority to spend money or bind the organization to an obligation, and setting limits on how high those obligations can go without board approval, the organization can ensure that assets are not squandered. This goes beyond just spending money. It also should include things like the contracting process: before a contract that commits the organization to spending money gets signed, it should be reviewed for alignment with budget.

  • Build an emergency reserve.

A nonprofit’s board arguably is not doing its job if it does not provide for leaner times during times of relative prosperity. Ensuring the long-term solvency of the organization can be crucial for providing flexibility and continuity. If donors suspect that an organization is not financially sound, they may take their dollars elsewhere.

  • Promptly address problems.

Developing a robust and reliable financial management culture can take time. Leadership should take every step to ensure that mistakes aren’t made, but they also should assume that a mistake will happen. Part of a financial policy should include provisions for regular reviews, whether that means an audit every year regular reporting obligations to the board, and so forth.

The Church Law Center of California advises nonprofits on governance and risk management. We can help your organization examine its practices for ways it can improve outcomes and protect itself from unnecessary problems. To make an appointment, give us a call at (949) 892-1221 or reach out through our contact page.

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