It’s not just you: Nonprofit financial management is difficult for several reasons. Even experienced finance industry professionals can struggle to understand the financial structure of a nonprofit whose board they join. Despite this reality, a little information goes a long way for board members trying to understand and engage with nonprofit finances.
This was the main theme of Brent Copen’s financial management presentation for select nonprofit board members. Previously recognized for his outstanding teaching, Brent is also the CFO of Tiburcio Vazquez Health Center in Union City, CA. He has worked with hundreds of nonprofit organizations through the years. He recently led a training as part of our Berkeley Board Fellows program.
Brent’s presentation contained real-world examples, activities, and tools for board members. Here are three brief but important points among many from the presentation.
Nonprofits are running two business at once; 1) program and/or service delivery, and 2) fundraising operation.
This is a reality of the nonprofit world. Although many nonprofits seek “financial sustainability”, that goal is extremely difficult to achieve without fundraising and donor support. Brent underscored this point by saying, “In all my years working with nonprofits, I have only seen one that is truly financially sustainable without relying on donors.”
Nonprofit management must honor donor requests to restrict funding to certain expenses.
Not all money is created equal. Part of getting and maintaining nonprofit status is the need to hold true to donor intent. If a donor asks that their contribution be used only for Program A, the organization must comply with those wishes and restrict the use of those funds. These restrictions can stress an organization financially if the restricted funding does not cover the fully loaded costs of the program.
Map program profitability versus the program’s impact on the mission.
This matrix is a useful way to understand how closely the financial priorities of your organization align with the programs or services that most affect the mission. In the example below, the x-axis is a program’s Profitability, the y-axis is its Impact on the mission, and the size of the circle is its total budget. Programs in the upper right are successful in that they are financially sustainable and have significant impact on the mission. Programs in the lower left should be evaluated for their strategic fit or value to the organization.
When viewed this way, some surprising questions or revelations may arise. Brent covered several topics in addition to these, including:
- Calculating service/program costs
- Overhead ratios
- Statements of Activities
- Budget planning and troubleshooting
- Forecasting and planning
The training was provided to nonprofit board members from organizations participating in our Berkeley Board Fellows program.