Why Good Financial Management Is Essential For Not-For-Profit Organisations
With all the nonprofit challenges in 2020, it’s easy to panic when it comes to nonprofit financial management during the coronavirus pandemic. With the situation changing almost daily, it’s hard to look to the future with any level of certainty. But if there’s anything 2020 has taught us, it’s that good financial management is essential for Not-For-Profit organisations providing mental health services to the community.
So, what does good financial management look like?
Understanding the Profitability of Every Programme
The global pandemic has caused the future of many Not-For-Profit organisations to become increasingly uncertain. To navigate this uncertainty, organisations need complete visibility to understand the profitability of their programs. While profitability is not the core purpose of a Not-For-Profit, it is vital to ensure that the organisation is sustainable.
It is fair to say that Not-For-Profits need to ensure they have the adequate cash flow to fund the programs they run to support their community. Understanding the actual cost of delivering vital community programs enables Not-For-Profit organisations to make clear decisions and choices about the value and priority of their services.
Upgrading From Manual Spreadsheets to Manage Complex Financials
A common problem facing a lot of Not-For-Profit organisations is the highly manual process of managing complex financials like expenses. For organisations to have a complete financial picture of operational activities, all income must be matched against expenses.
Wages and salaries, rent, advertising, fundraising expenses, and client support expenses can all be classified as expenses and can be intricate. Every organisation organises expenses differently and trying to manage complex financials in spreadsheets can be an arduous task and result in errors.
Not-For-Profit organisations need to take a hard look at how they are managing their complex financials. Organisations relying heavily on spreadsheets should consider upgrading from manual processes to an integrated system that can connect all areas of the organisation. Having a single version of the truth when it comes to data on inventory, payroll, sales, and donations means all teams can input their data once and have confidence that their reports will be accurate.
Planning for a Rainy Day/Week/Month/Year
Budgeting and forecasting are essential to Not-For-Profit organisations as they are the tools that develop the strategic plans of an organisation into financial results. As most Not-For-Profits operate without large reserves to fall back on, having clear financial results allows organisation leaders to evaluate and monitor their strategic plans.
When the future is looking unstable, have the right tools for budgeting and forecasting can be a guide to enable the leaders of an organisation to decide if the strategic plans they have in place will support ongoing operations. Budgeting can provide an opportunity to plan for the future and identify changing conditions that may impact on the organisation’s operations and cause financial difficulty… Like, for example, a pandemic.
Build a Resilient and Sustainable Business Model
Building sustainability and resilience is about continually adapting. Not-For-Profit organisations will need to adapt to faster changes in the demand for their services. There are four main components to the financial structure of a Not-For-Profit:
- Programme costs
- Revenue mix
- Capital structure
Together, these four components define the business model that creates value for the community and sustains the Not-For-Profit organisation. Understanding the current business model and identifying any weaknesses requires the ability to assess external economic impacts and past decisions that may have affected core operations and programmes.
Become the Picture of Financial Health
This pandemic has increased the pressure on Not-For-Profit organisations to have a complete picture of their financial health, including an accurate view of performance data, cash flow, profitability, and liabilities. Confusing cash with-profits could lead organisations into feeling a false sense of security as they may have a good reserve of cash. Still, their trading activities may not be profitable.
If their activities are not profitable, they will eventually erode income generated from other income streams of the organisation, such as donations, and reduce the cash available to achieve their objectives.
Not-For-Profit organisations that provide mental health support services to the community are more important than ever as it has been reported that mental ill-health is now costing Australian workplaces more than $13 billion yearly. COVID-19 has increased the demand for their services through higher unemployment and the separation of families through social distancing and border closures. Organisations are looking to safeguard their future need to look at their financial management tools and reassess the way they do business. Good financial management is essential to create a sustainable Not-For-Profit organisation.
Download our “7 Actions Businesses Need to Take Now” playbook to discover how the right technology and processes can support your nonprofit organisation to meet your NonProfit Challenges in 2020.