Imagine you’re a board member whose nonprofit hires a financial management consulting team. The consultants report to you that 100% of your reserves have been used to cover an operating deficit. Now imagine that you’re shocked by this revelation because you haven’t been getting timely financial information. What would you do?
This board made significant leadership changes and started having strategic discussions about the organization’s current and future financial health. They kept having those conversations even after the immediate crisis was over. The results? Not only have they have fully replaced their reserves, they’ve increased them, added staff and more than doubled the number of people they serve.
Another organization made the commitment to build a reserve fund equal to 6 months of expenses. They aren’t quite there, but have steadily increased their reserves. They keep this long-term goal in front of them when they review financials, approve the budget and engage in strategic planning.
We applaud the determination, resilience and creativity of nonprofit organizations like these. Despite the often difficult and uncertain financial landscape, some organizations are thriving. According to the Nonprofit Finance Fund’s 2013 State of the Sector survey of 5,983 NPOs:
• 40% ended 2012 with an operating surplus
• 20% were able to add to their reserves
• 41% increased the number of people served
• 49% added or expanded programs or services
You may think these organizations had a financial superhero on their side, or a stroke of good luck. For some that may be true. However, the survey results mirror our observations consulting with nonprofit organizations. We’ve seen some organizations falter and others wildly succeed.
The difference? The staff and boards of organizations that thrive consistently engage in meaningful financial conversations. They take action based on those conversations. Even if they find themselves with a little luck on their side, they find ways to capitalize on that good fortune.
Financial oversight and planning can be one of the most challenging responsibilities of nonprofit leadership. While reliable data is essential, your interpretation of that data and resulting actions are even more important. When reviewing financial information, it’s easy to get lost in the details or rush through the process to get to more exciting topics. But once you make a long-term commitment to strategically upgrade the quality of your financial discussions, you improve your planning and decision making, ultimately strengthening your organization’s long-term financial health.
Making the upgrade requires:
• Qualified staff who provide accurate, timely and meaningful financial information
• Engaged and prepared board members who understand their governance role
• Curiosity, healthy skepticism and a willingness to ask tough questions
• A shared commitment to accountability and action
• Collaborative, supportive relationships between staff and board
• Time dedicated to meaningful financial conversations
Does your organization have what it takes? Are you willing to strategically upgrade your organization’s financial conversations to strengthen future financial health?