by Annisa Wanat, ACN member

“There are super sexy exciting things to think about running a nonprofit, I know no one wants to talk finance, but you have to,” began Megan Angle for ACN’s April Educational Program, “How to Run Your Nonprofit like a For-Profit.” In ACN’s first virtual educational program, Megan, a CPA with Porte Brown, provided useful tips for nonprofits on solid financial management policies and procedures that will impress donors and strengthen your organization. 

1. Key Financial Policies 

From an auditor’s perspective, there are four key policies to have in place to demonstrate to your team that your nonprofit is committed to staying financially healthy. First, conflict of interest policy requires any staff and board members to disclose any potential conflict of interest with vendors or suppliers - and remove themselves from the decision-making process involving those parties. Although federal law prohibits retaliation against employees who shine the light on misdeeds, a written whistleblower policy demonstrates your organization’s commitment to transparency. A compensation policy that ideally uses an external source to be sure your salary scale is in-line with other similar nonprofits in your region can streamline the negotiation process with new employees. And finally, a document retention policy will help your entire team understand the importance of organizing files.

2. Zero-Based Budgeting

Instead of building your annual budget based on the previous year’s spending, consider planning your expenses from the ground up. This method of budget development requires you to justify all your costs at the beginning of the period. Megan recommends creating a budget this way every year, but if you find it too arduous, every other year would be reasonable. The idea is to be sure you reflect on your plans and to be sure you are doing what is needed, rather than just continuing to operate “the way it has always been done.”

3. Operations, Capital, and Cash-Flow Budgets

A financial sound nonprofit will separate its budget plans by category, as well as be sure that anticipated revenues, especially if they vary seasonally, can cover your expenses on a month-by-month basis. A cash-flow budget will help you navigate ebbs and flows in funding, for example, when there is a global pandemic that interrupts the economy. 

4. Budget to Actual Comparisons

“Don’t put together a budget and never use it,” stressed Megan. Periodically reviewing your budgets to see if your plans have come in on target can help you understand relationships and patterns for future planning. Also, consider picking a couple of key metrics, such as working capital, savings indicator, and debt ratio and analyze the financial strength of your organization over time.  

5. Hierarchy of Emergency Liquidity Planning (HELP)

Understand the HELP so that you can plan for disruptions in your cash-flow. To lay the groundwork for stability, be sure to maintain a savings account with minimal withdrawal fees and keep at least 30-days of expenses in it that will not be touched until an emergency. Second, before you need it, establish a line of credit for another 30 days of expenses. It will be harder to get the loan if you wait until you need it. Be sure to have a plan for what your liquidity should be before you can tap into the savings account or access the line of credit. 

Megan not only stressed the importance of these five financial management policies and procedures but provided suggestions for how smaller organizations could implement them. If your organization is not ready to hire a full-time financial person, consider outsourcing this to a CPA. Or recruit a board member who has these skills to build up the policies and train staff on implementation. 

At the end of the presentation, Megan fielded questions from attendees. The full webinar is available on the Porte Brown site.