You can’t drive a car without a steering wheel just the same as you can’t run your nonprofit without nerding out on numbers. Understanding financial health means the Board of Directors and Executive teams can make well-informed decisions that drive the future of the organization.
What is the importance of knowing the financials?
Financial statements give an overview of the financial wellness of the organization. These include income from donors, grants, and loans, expenses, assets, and liabilities. Understanding the reports, you can answer a variety of questions and make decisions.
Nerding Out on Numbers: How do you use financial reports?
Being in the nonprofit world for more than 20 years, I’ve seen a lot of organizations flourish and I’ve seen many fail. The success and failure are because of the knowledge the leaders had about the organization’s income and expenses. As you think about your nonprofit, ask questions like the following.
How did actual financials compare to the budgeted financials? Are there areas for improvement? What looks good and how can that be replicated in the coming months and years? If there is no budget, start by creating one based on what you know today. Then put a process in place to review the budget vs. actuals on a consistent basis.
What are the largest sources of income? Most organizations don’t want to rely on one source of income as putting all your proverbial eggs in one basket can spell disaster when the source is no longer available. How much is coming from donors, grants, and events? What are the biggest sources of income? How can those be replicated in the future?
#NerdOut and get to know your donors.
● How much have donors given in the current year and over time? Are they making one large annual donation or smaller monthly donations?
● How many new donors do you have this quarter, year, etc.? If you’re relying on an old book of donors, it’s probably time to explore how to attract new donors so the organization can continue to grow.
● How are new donors finding the organization? New donors are more likely to be on social media and donate through an app. Older donors may still like receiving letters in the mail. Learn as much as you can about each of them.
● Where are they donating? Online? Events? App?
● What is the biggest source of fundraising?
● Review grants. Do you need to apply annually? What do the Grantmakers need? Are you compliant with the grant terms?
What are the biggest expenses? Renting office space and hiring employees are often big expenses. Does it still make sense to have the personnel that you have currently? Are there changes that can be made? Do you need the office space or can the team work remotely or rent coworking space instead? Review options in these areas to get a better idea of how money is being spent in these areas.
#NerdOut on Fundraising and Programming Numbers
● What can you learn by analyzing fundraising sources? For an urban neighborhood group, their largest source of income is a holiday home tour. Knowing this, the board can plan for that event, gain buy-in from homeowners, gather sponsors and volunteers, and set ticket sales goals.
● Which programs and/or events performed best and worst financially? In my article Ask for Money with Confidence, I detail an event in which the person asking for donations on behalf of the organization was not confident and how it impacted how much was received. Spoiler Alert: It didn’t go well. The lesson? Be confident when making the ask!
● Is there room in the budget to launch a new program? If not, can it be planned for a future year?
Analyze events and programs by cost per event or cost per program to discover how they are performing financially. If a program or event is costing more in expenses than donations and other income, it’s time to consider a different strategy. Conversely, if a certain event or program is outperforming expectations, consider how it can be duplicated throughout the year.
Board of Directors
Their role is in understanding and planning for the future of the organization. While they are interested in current events, they aren’t, or shouldn’t, be involved in day-to-day operations.
● What are the financial obligations of the Board? Are they meeting their fundraising goals? If not, it’s time to engage the board about why and encourage their efforts.
● Are the goals for the Board made clear to them in the onboarding process? Is there ongoing education about their role within the organization? They need to know what they need to do and why because that will (hopefully) engage them.
● Do you need to make changes with Board members? Not everyone is a good fit. It’s okay to evaluate their performance and make changes as you can. It’s not about the people; it’s about the mission of the nonprofit.
What if you are having trouble #NerdingOut on the numbers?
If nerding out on numbers sounds overwhelming, you’re not alone. There are professionals here to help you. Hiring a part-time controller like Your Part-Time Controller, a sponsor of The Nonprofit Show that I co-host, can take the pressure off your team so they can focus on the mission.
Your Part-Time Controller works remotely to review and update books and creates reports that are easy to understand. They understand you’re focused on the nonprofit, so let them manage the accounting and financial reporting on your behalf.
As a nonprofit leader, you are responsible for how the organization is performing financially. It’s the steering wheel you need to drive the future of the organization. Hiring a financial professional who can support you nerding out on numbers will be worth your time and money. You will have vital information to use when making decisions about the nonprofit.