Several months into the Executive Director position, I’m still hungry for great articles on the financial side of nonprofits. This one popped up on my Twitter feed last night from NonProfit Quarterly, and although the article is almost five years old, it’s a great tool for mapping out a financial plan for your organization. At the end of the article, this statement really hit home for me – “Executive directors learn that leading a nonprofit requires a constant balancing of current needs, external demands, and long-term vision.” I also appreciated their definition of ‘financial leadership’. “Financial management is the collecting of financial data, production of financial reports, and solution of near-term financial issues. Financial leadership, on the other hand, is guiding a nonprofit organization to sustainability.” While I’ve been working hard on financial management over the past several months, my next step as Executive Director is to focus on financial leadership.
Earlier this summer, our Board met with staff and musicians to embark on a three to five year strategic plan, and Sustainability is at the top of the list. It’s one thing to talk about Sustainability and another to actually put in new practices to really shift your organization to that level. One of the top items we discussed was how to pay off our line of credit sooner as well as not relying on it so much each season. We also discussed how to build a cash reserve for those seasons when revenue just isn’t coming in as it should. This article helped me realize that we’re on the right track in our thinking, and it also provided some concrete methods for how to get there.
An Executive Director can’t do it alone. It takes the work of the Board, its Finance committee, and the staff to realize financial sustainability. If you don’t have time to read the entire article, there’s a handy dandy cheat sheet below with the highlights.
By Kate Barr and Jeanne Bell
A SUMMARY OF THE EIGHT MUST-DO’S FROM THIS ARTICLE . . .
1Develop your annual budget with a commitment to its net financial result—whether surplus or planned deficit—and then adjust spending during the year if income is not coming in on pace to yield that net result. Then, complement your annual budget with rolling financial projections that incorporate your most current information about probable future financial results.
2 Diversify your income cautiously, ensuring you have the capacity to develop and sustain the programmatic and operational requirements of attracting each new resource type well.
3 Develop cash flow projections along with the budget and rolling projections so that you can anticipate any cash flow problems well in advance, when you have more options.
4Plan goals for financial reserves based on your typical cash flow cycles and risks and incorporate reserves into all financial plans and policies. Be sure to foster a financial culture for staff and board that promotes the importance of a regular operating profit or surplus.
5Pursue restricted funding from those foundations and corporations that understand and value your organization’s mission and particular strategies for achieving impact. When pursuing restricted funding, develop proposal narratives and accompanying budgets that link staff development to program design to superior outcomes, including all related costs as direct.
6 Ensure that your finance function is always properly staffed; if necessary, use a mix of staff and expert contract consultants to achieve this.
7Discuss expectations for financial roles and responsibilities with board leadership to create accountability and information flow that matches the size and life stage of the organization. Make sure to invest time in developing meaningful financial report formats for the board that reinforce organizational strategies and goals and support the board in fulfilling their responsibilities.
8 Introduce the concept of enterprise risk management to your team and initiate an internal assessment of a full range of risks.