I know what it’s like - sweating the finances – when not as much money is coming into your nonprofit when it was expected to come in. Government payments are delayed yet you are still expected to run the programs they fund. Grants were submitted later than anticipated. A major gift donor falls upon unexpected circumstances. A special event turnout is less than expected. Anything can – and does – happen. What do you do then?
Commit to Only What You Can Pay For
It sounds easy to only commit what you can pay for. In reality, it is often much harder. Especially if your nonprofit is growing. That’s because revenues generally lag behind growth, which puts the organization under tremendous stress. You need additional staff. They need work equipment. Your clients consume more program supplies. What you need to do in situations like this is take as small steps as you can so you don’t financially overcommit and end up going out of business because you grew too fast. When money does start coming in, take small steps forward. Be conservative in what you think you think you can afford. Make sure to run several years’ worth of numbers first. And keep your eye on your agency’s expenses, particularly staff costs. You want to make sure your nonprofit can get through this year, and next, and the one after that, with the added payroll costs.
You also want to save some of the new net income and put it away for continued growth. Your objective is to stay in the black while you continue to grow. You need money set aside specifically for growth to do that. And make it a percentage of net income, not a specific amount. That way, your growth reserves keep pace with the varying amounts of net income you may realize from year to year.
It’s even harder if your organization has experienced a financial decline. In that case, you need to turn things around. You may have to make hard decisions on where you allocate resources if you need to cut expense budgets. And your decisions may not be popular. For more on recovering after a financial decline, see How to Rebuild Your Nonprofit’s Finances During COVID-19.
Project Realistic Revenues
Hopefully, you’re projecting revenues based on performance history, and not just a number you want to reach. When you budget, you need to budget based on data, not wish lists. Your numbers need to be realistic to be within reach. What do you do? Calculate your agency’s track record of the fundraising revenues it generally realizes in relation to how much you ask for. And then reduce it by 5 percent. The last thing you want to do is to commit to spending money that might not come in. For more about budgeting and fundraising, see Common Budgeting Mistakes NOT to Make-And the Easy Solutions That Will Revolutionize Your Fundraising Results.
But things happen, even with the best laid plans. A building fire. A flood. A bomb threat. A pandemic. Although unlikely, these things do happen. And not only do they eat into your agency’s budget, they hinder your fundraising efforts. In times like these, it’s important to have reserves on had to get you through the emergency and subsequent loss of revenue.
Plan for Emergencies
Manage your risks. Usually this translates into having adequate insurance. Always have adequate insurance. Review your policies once a year and keep your payments current. Just in case something awful happens.
The other thing you should do to be prepared for when the unexpected happens is create and regularly contribute to an operating reserve account. If you own a building or other real estate, you will also need a capital reserve account. I know. I know. Where is this money supposed to come from?
The positive net income you get when you realize higher than budgeted revenues and lower than budgeted expenses. This means you need to budget conservatively. Your goals, however, should be higher than what you budget. Your board is responsible for the financial oversight of your nonprofit. Let them help you budget conservatively. Get their input on what and how much you budget for. They are the ones that hold fiduciary responsibility for the organization.
Wait, you might say. That means you want me to put aside money in a growth account and a reserves account. That’s exactly right. It really doesn’t matter how large the percentage is, just as long as you are regularly saving. The formula I like is one third of net income into staff, one third to the growth account, and one third to the operative account. No matter how small the net income.
Identify Your Fundraising Strengths and Gaps
To make sure you can then meet your revenues, your first step is to assess your agency’s fundraising strategy. You want a strategy that leverages your agency’s fundraising assets and works within your organization’s capacity. To objectively assess your fundraising assets, you need objective input. You need the perspective of someone experienced in fundraising who has worked at a number of agencies. Your development director may be able to do this. Or an experienced fundraising professional who is also or has been an executive director may be able to help you. You want to select a person that will be be able to point out organizational strengths that are hard for board and staff to see.
Then create an action plan that is strengths-based. You will realize far better financial results by building on your strengths than working to overcome your weaknesses. Number one, it will take your agency less effort to implement the plan, conserving staff resources. Number two, your staff will be more satisfied in their work, leading to higher productivity. And number three, staff will be happier leading to higher morale and client and donor satisfaction.
Wrapping It Up
If you only spend money you have, budget conservatively, plan for emergencies, set aside funds for growth, and build on your strengths, you will stay in the black. There will be more money than month. Your nonprofit will not only survive, it will financially thrive. You will have more money than month.
Budgeting, financial management, and building on your fundraising strengths is just one step to achieving sustainability. It is also important to engage your board, mobilize your staff, and excite your community.
To learn what your nonprofit can do to move ahead, schedule a complementary 30-minute strategy session with me. During our time together, we will clarify the fundraising issues your nonprofit is facing, explore possible solutions, and develop a plan of action.
When you make your appointment, you will be asked a few brief questions about your situation so that I am best prepared to help you. I look forward to our conversation!