Throughout many decades, many nonprofit organisations have played a big role in building many healthy communities. However, one of the biggest challenges that these nonprofit organisations face is sustainability. It is understandable that budgeting strategies for nonprofits are a vital skill for nonprofit organisation managers when it comes to ensuring the sustainability of their programs.
Sustainability within the organisation means that a program can keep operating and deliver the intended results over time. And there would not be any interruptions because of external factors such as funding.
These days, while budgeting and sustainability are two of the biggest things an organisation manager needs to focus on, it is extremely beneficial if there is a general focus on nonprofit financial management and financial literacy.
What can financial literacy do for nonprofit organisations?
These days, many experts in the field are emphasising the importance of nonprofit organisations being financially literate. Financial literacy can do way more than just get you through tough economic times with sustainable financial practices.
- Planning ahead
As we all know, there are multiple sources from which nonprofit organisations get their funding. Keeping track of all those is a daunting and challenging task. And it is particularly true if employees are spread thin working in multiple departments. Most nonprofit organisations have to file every year.
Despite that, the majority of nonprofits are prone to spend the most money in the short term, like program expenses and operating costs. It implies not investing in anything long-term. It is why, even though nonprofits are generally exempt from tax, the managers still require financial literacy for nonprofit sustainability and to understand cash outflow on top of the inflow, especially if the organisation wants to maintain the operations in the foreseeable future. Without sacrificing organisations’ core functions, nonprofits can cut costs.
For example, if a nonprofit relies on a credit card or a line of credit, you will realise that many fees come with a credit card. If you do your research, you can avoid all these fees and extra charges. Also, by lowering expenses, your organisation will accumulate sufficient amounts over time to deal with any uncertain circumstances.
- A better way of budgeting
Speaking of nonprofit budget planning, in every nonprofit organisation, people are hired for their proficiency in the company’s specialised purpose. For example, nonprofit organisations that focus on women’s rights hire individuals who are familiar with the law or have a degree in gender studies. Therefore, when it comes to financial planning, most staff members may not have the knowledge required to understand an organisation’s financial health.
When looking at the resulting budgets, it may seem confusing. It also might not cover all the necessary areas to understand the complete picture of the organisation.
As a result, investing in nonprofit financial education and nonprofit financial reporting for your staff will help them have better clarity of the true cost of what it requires to run a nonprofit, resulting in budgets that are realistic and efficient. Knowing fund allocation for nonprofits and the proper way of budgeting will assist you and your donors in having better clarity on where the money is going. With that, you can prioritise what projects to fund on top of your operating costs.
- Data-driven approach
It goes without saying that there are many fiscal responsibilities in nonprofits. Being financially literate implies that the data will form the base of your organisational decisions. Whether it is about effective nonprofit budgeting or financial sustainability in the nonprofit sector, data-driven decision-making helps tackle many aspects of your nonprofit organisation.
Tips to build financial literacy for nonprofits
Whether you are wishing for better grant management for nonprofits or you are looking for strategic financial planning for nonprofits, here are some of the tips that will help you build financial literacy for nonprofits:
- Educate the organisation
Education is your best first step towards making your nonprofit organisation financially literate. You should thoroughly research what other nonprofit organisations are doing and consider checking out the case studies. Additionally, you can sign up for the newsletters of financial experts, podcasts, and YouTube channels. It will benefit you in the long run if you can invest in training and workshops.
- Financial policies and procedures
Take a good look at the processes that are already there. Check out the different gaps in the procedures and write all of them down. You are clearly defining the responsibilities and roles by creating the policies and procedures. Additionally, you are safeguarding your organisation’s leadership from being affected by uncomfortable financial decisions or making terrible ones by having set policies in place.
- Adoption of budget tracking
Just like we do it with our personal finances, sticking to it after creating an effective nonprofit budgeting can grant you freedom and clarity with the finances of the nonprofit. Looking at the true cost of running a nonprofit can result in more efficient practices and set up more realistic expectations. You need to look for a template that works best for you and your nonprofit organisation.
- Involvement of board members
Your board members are an integral part of your nonprofit organisation. Therefore, it is an ethical practice that involves direct communication among leadership and demands that they take financial matters seriously. In addition to that, this will build trust, accountability, and clarity in the new routine that you have introduced and are looking to establish to reform the financial literacy of the nonprofit organisation.
- Enhancing fundraising strategies
An updated strategy for fundraising is vital if you are considering long-term financial planning for nonprofits. It is also important because it enhances the organisation’s earning potential from the donors and successful campaigns. Additionally, a solid strategy empowers you to take on more diverse initiatives with the energy and time that squeezing the juice from an old strategy would have cost you. It is also an opportunity to educate yourself intentionally on further investment and funding options besides donor relations.
- Data-driven decisions
Consider making it a regular practice to present the data of your organisation’s financial activities and results visually and synthesise assuage any uncertainty regarding your procedures among donors, leadership, and members. It is fairly easy for nonprofits to allow the emotional impact of donor scrutiny and news headlines to drive their financial decisions. However, suppose the undisputed data is the primary force that is driving your tactics. In that case, the members of your organisation are empowered and confident by the orderly and transparent operations that they follow.
Wrapping up
Sustainability and budgeting both come with challenges and opportunities for nonprofit financial health. From the volatility of funding to the competition, there are many challenges that you will face towards your journey to make your nonprofit organisation financially literate. While it is something you must consider, the tips we have provided above will help you navigate the pots and hurdles of the road to becoming a nonprofit organisation with financial literacy.
