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Financial Management

What's a budget anyway?

A key component of nonprofit sustainability is the commitment of board and staff to strong financial management and planning. But it's also important to make sure everyone is on the same page. Board members and staff who are new to the charitable nonprofit context may wonder, "Does a nonprofit’s budget have to break-even?" "Can there be a profit?" Nonprofit Budgets Have to Balance: False! (Blue Avocado) covers everything budgets: surplus budgets, break-even budgets, deficit budgets, and the misconception that a nonprofit’s budget has to balance at the end of the year. Is it time to create your nonprofit’s budget? Here are some tools to head your nonprofit in the right direction:

What policies should your nonprofit consider to help it manage its finances?

Financial Literacy for Boards

Managing Cash Flow

  • Heard about the "Nonprofit Starvation Cycle"? This now classic report by William Bedsworth, Ann Goggins Gregory, and Don Howard (Stanford Social Innovation Review, 2009) offers steps towards breaking the cycle, based largely on in-depth profiles of four youth-serving nonprofits that managed to expand their capacities in critical ways despite the pressures of the "starvation cycle." Break the cycle with awareness of the true cost of providing programs, plus careful planning:
  • Cash flow Toolkit (affordable sofware developed with small nonprofits in mind) (New York Council of Nonprofits)
  • Cash flow template plus a scenario planning worksheet (Nonprofits Assistance Fund)

Overhead

What is "overhead?" Overhead is generally defined as a combination of “management,” “general,” and “fundraising” expenses, but you can be guided by definitions found in the Instructions to the Form 990. The resources below provide background on why those concerned with nonprofit sustainability are equally concerned that nonprofits are sometimes unfairly criticized for having "high overhead" costs.

What internal controls should a nonprofit have?

Operating Reserve policies

Investment policies

The governing board, through its investment committee, must define the investment objectives that will best support the nonprofit’s philanthropic mission. The committee should write the objectives into an investment policy statement and use it continually as a guide for its investment managers and its own decisions.” Source: The CommonFund in Principles of Nonprofit Investment, a guide to investment management for nonprofits, that also includes a worthwhile bibliography on this subject.

Before you invest…develop a sound approach to investing assets with tips from the Nonprofit Risk Management Center. Careful delegation of authority to the committee charged with oversight for a nonprofit’s invested assets is needed because of the legal and fiduciary responsibilities involved.

More resources on strategic and business planning for nonprofits.

For suggested texts on financial management for nonprofits, please visit the Council of Nonprofits' online bookstore.