Financial Management

When asked what about their organization keeps them awake at night, most nonprofit executive directors and senior managers will give the short and simple answer: money.

Bonnie McFarlane reminds us: “While most nonprofit leaders bring financial management experience to their job, many have less expertise in this area than they would like. All, however, are aware that sound financial management is linked with every function of the nonprofit and is essential for organizational success?.

Nonprofits have an obligation to act as responsible stewards in managing their financial resources. This means that your organization must comply with all legal financial requirements and adhere to sound accounting principles that produce reliable financial information. Your board must help the staff to ensure fiscal responsibility and build public trust. Your financial resources are used to accomplish your missions in an effective and efficient manner and should establish clear policies and practices to regularly monitor how funds are used.

There are Seven Characteristics of Financially Healthy Nonprofit Organizations:

  1. The financially healthy organization has sufficient income to ensure stable programming.
  2. The financially healthy nonprofit has an internal source of cash or ready access to cash in times of shortfall.
  3. Financially healthy nonprofits engage in income-based, rather than budget-based spending. Income based budged: A. Begins with realistic income projections. B. Determines realistic costs of next year’s service delivery through: Analysis of last year’s costs; Consideration of current market conditions; Functional cost allocation.
  4. At the end of each year, the financially healthy organization retains a positive cash fund balance (surplus).
  5. In years where a deficit does occur, the financially healthy organization has accumulated surpluses sufficient to cover the current year’s deficit.
  6. The financially healthy organization has established (or has plans to establish) an operating reserve to finance growth and cash shortfalls.
  7. The board and management of financially healthy nonprofits hold themselves responsible for the financial stability of the organization.

As part of its Principals and Practices for Nonprofit Excellence, The Minnesota Council of Nonprofits offers an extensive series of resources to aid your nonprofit organization’s responsible management of its financial concerns.

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Nonprofit Financial Services Professionals

Davis & Hodgdon Associates CPAs, PLC
33 Blair Park Road
Suite 201
Williston, VT 05495

Montgomery & Merrill
Fairchild Square
110 Main Street
Burlington, VT 05401

Alice Astarita
1274 Old Stage Road
Westford, VT 05494