5 Nonprofits Financial Drivers That Are More Important Than Ever Before!

November 14, 2017 Kathy Finnell

Funding of public services is a national conversation. We don’t know where the funding is headed but I think we can all agree that changes are coming. Constant change is a reality today, but the volatility of the current environment has a lot of nonprofits concerned.

The top 5 drivers to ensure that your organization has the financial information to be responsive.

1. Cash is king. Without cash, we can’t serve our constituents. The components of cash are cash position, cash flow and liquidity. Do you know your “true” cash position every day? If not, why not? Daily cash position is the easiest thing to know given where nonprofit accounting software is yet often “true” cash is not known for days after month end. Accurate daily cash balances will facility a health understanding of cash flow and liquidity.

2. Asset Utilization. Having the ability to know your financial position so you can deliver services robustly but also survive tough economic times is critical. A solid but quick close along with key performance indicators is critical to pacing the creation and consumption of assets.

3. Units of Service. This is about mission impact. Mission is why we do what we do. Impact is how effective we are at driving mission. Aggregate data into digestible graphs to communicate mission impact. Unit of service should include demographic data – first tier, second tier and third tier service recipients, as well as, the cost and benefit of services. Good financial information without outcome data provides an incomplete picture and may leave the nonprofit in a position where it cannot defend its existence.

4. Adaptability. Most businesses rely on growth fueled by new products or services to deal with the constant change that is a reality in all business environments. Revenue in nonprofits is usually less elastic than for profit entities as consumers of the services rarely bare the entire burden of the costs. Nonprofits can increase top line adaptability by mergers, shifts in services or revenue diversification. The current national debate is driving large donations to some services. A targeted fundraising initiative may be advisable. Regardless of your strategy know your trends and chart your path accordingly. As Steven Covey says “No margin, no mission.”

5. People. Engagement in nonprofits is a real problem. (Norris, 2017) As Sean Norris states “As it turns out, changing the world is kind of a grind.” Norris states a strong, healthy work environment; trust in leadership and belief in the future success of the organization as the key factors to drive engagement. His study focused on employee engagement but I believe the three tenants also hold true for volunteers and donors.

Leaders need to understand the intersection of each of the drivers and help stakeholders understand these important intersections, as well. The future success of your mission depends on us to get it right!

Nonprofit Financial Management

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