As we welcome a new year, nonprofits are presented with an opportunity to reflect and set meaningful resolutions. These resolutions go beyond personal aspirations; they will fortify your organization. This year let’s focus on three critical areas that every nonprofit should prioritize for a stronger, more accountable, and transparent financial future.
Resolution #1:
Implement Robust Financial Controls
Financial controls are like a seatbelt in a vehicle, essential for your nonprofit’s safety. They play a critical role in preventing fraud, errors, and mismanagement. In an environment where trust and effective use of resources are paramount, the establishment of stringent financial controls is indispensable.
Effective financial controls begin with the development of clear, concise policies that outline responsibilities and procedures. These policies should encompass areas such as expense approvals, check-signing authorities, procurement processes, and financial statement reviews. Coupled with these policies, regular internal and external audits are crucial to ensure adherence. Equally important is the education and training of staff about these controls, as their effectiveness hinges on the diligence of the people who implement them.
Implementing robust financial controls is a testament to your organization’s commitment to accountability. This approach reflects a deep respect for the resources entrusted to your organization, ensuring they are used effectively and thoughtfully. It also signifies a strong commitment to the mission, underpinning its success with integrity and sound financial practices.
Resolution #2:
Conduct a Financial Risk Assessment
Conducting a financial risk assessment is like checking the weather forecast before a trip. It’s about anticipating and preparing for potential financial challenges that could destabilize your nonprofit.
This involves several key steps, starting with the identification of potential risks. These risks can be diverse, ranging from funding shortfalls, fluctuations in donor commitments, to unforeseen expenses or changes in economic and/or political conditions. Identifying these risks requires a thorough understanding and regular review of both the internal workings of your organization and the external environment in which it operates.
Once these risks are identified, the next step is to evaluate and prioritize them. This is done based on their likelihood of occurrence and the potential impact they could have on the organization. This evaluation is not a one-size-fits-all process; it requires a tailored approach that considers the unique aspects of each nonprofit. During this phase, it’s essential to engage with key stakeholders, including board members, financial advisors, and possibly even representatives from the community served by your nonprofit. Their insights and perspectives can provide invaluable context to the risk assessment process.
This plan should outline clear steps that your organization will take to mitigate the risks. It might include diversifying funding sources, creating a financial reserve, investing in staff training, or adopting new technologies to improve efficiency.
Moreover, the outcomes of this assessment should directly inform and shape your organization’s strategic planning. Remember, risk assessment is about fostering a proactive, forward-thinking approach rather than a reactive, responsive one.
Resolution #3:
Create a Financial Dashboard and KPIs
Key Performance Indicators (KPIs) are vital in monitoring your nonprofit’s financial and mission-centric goals.
Creating an effective dashboard is a critical step in this process. It involves the careful selection and integration of key metrics that accurately reflect your organization’s performance. These metrics can include fundraising efficiency, cost per program delivered, number of constituents served, and cash reserve measures. The choice of these metrics should be meaningful, relatively simple to create, and align with your organization’s specific goals and operational model.
In today’s digital era, embracing technology and software tools is crucial in creating an intuitive, accessible, and user-friendly dashboard. Software solutions can automate data collection and analysis, presenting real-time insights in an easily digestible format. This streamlines the process and enhances the accuracy and reliability of the data presented.
Training the team to effectively use and interpret the dashboard is equally important. This involves ensuring that staff members understand the metrics, know how to extract meaningful insights from the data, and can translate these insights into actionable strategies. Regular communication and training sessions can be instrumental in building this capacity within the organization.
While dashboards and KPIs are primarily utilized internally, nonprofits should proactively consider avenues to strategically share key data with donors and stakeholders. This approach ensures that they are well informed about the organization’s goals and fosters trust by showcasing the responsible and effective utilization of resources.
Wrap up
For nonprofits, these resolutions are not merely about enhancing internal processes; they represent a commitment to upholding the trust and confidence of beneficiaries and supporters. By prioritizing robust financial controls, comprehensive financial risk assessments, and the creation of insightful dashboards and KPIs, you can ensure that your nonprofit is not just surviving but thriving for years to come.
Chazin & Company
With over 19 years working exclusively with nonprofits, we pride ourselves in having a unique understanding of nonprofit accounting needs. We believe that nonprofits deserve personalized, quality service and should not settle for a one-size-fits-all approach. We collaborate with you to provide a fully virtual and customized solution that is not only cost-effective but also strengthens your accounting function. We offer a team of industry experts at your disposal to provide advice, leading technology, and to supplement existing staff to improve efficiency and compliance.