4Thought Blog

Nonprofit leaders have a lot of important duties to accomplish. Right behind following your mission should be managing your finances – without best practices in force, nonprofit leaders could make some costly missteps.

See our best financial practices for nonprofit organizations below. And these are not just for the CEO, CFO and other executive officers – nonprofit board members have fiduciary responsibilities to their organizations, including having a deep understanding of the finances.

Is your nonprofit organization pursuing planned gifts? It should be. Research suggests that the average planned gift in the United States falls between $35,000 and $70,000 -- and the amount may increase with more Baby Boomers moving into retirement. Yet many nonprofits, especially small and medium-sized organizations, lack formal planned giving programs.

Audits have become more important due to increased public and government scrutiny of nonprofit organizations, their management and their boards.

Audits not only provide you with a fair assessment of your organization's financial health, but also can reveal vulnerabilities such as weak internal controls, insufficient cash reserves and poor investment policies. Perhaps most important, regular audits reassure your donors, members and other stakeholders that you run a fit organization.

Taxes generally aren’t a top business concern for nonprofits, but if your organization has unrelated business income, it’s an issue even tax-exempt organizations have to keep track of.

What’s unrelated business? It involves a trade or business regularly carried on (including seasonally) by an organization, which isn't substantially related to the exercise or performance of its exempt purpose or function.

It’s an issue that’s been the subject of tax pursuits and even a lawsuit in Allentown. The city has recently started seeking business privilege taxes on nonprofit organizations’ profit generating activities. Good Shepherd Rehabilitation Network filed a lawsuit against the city about the tax pursuit.

The Financial Accounting Standards Board is in the business of rulemaking, and there’s a new one nonprofits need to be aware of.

Back in 2016, FASB issued new guidance required for all nonprofit organizations with fiscal years ending after December 15, 2018. While the majority of the changes are purely cosmetic, understanding each will make your year-end financial reporting much easier.

It doesn't happen often, but sometimes nonprofit organizations merge or are incorporated into one another.

For example, your nonprofit may be contemplating an acquisition of a smaller organization or perhaps you may be merged into a larger organization. In either event, this represents a significant change for managers both personally and professionally.

What causes nonprofit organizations to join forces? After all, groups generally start off with a distinct mandate and a commitment from its supporters. Of course, the reasons vary according to actual circumstances, but most mergers and acquisitions in the nonprofit world can be traced to one of these two reasons:

Debt is an integral part of the strategic plans of many organizations, yet it has traditionally carried a stigma in the nonprofit industry. That view is changing, as more organizations borrow money for major capital purchases, new program funding — even to manage current cash flow.

But if you're hoping to borrow funds, know that not all nonprofits qualify. And even if you're able to find a lender, it takes prudent financial management and reliable donor support to pay back a loan.

Managing limited resources and dodging between various compliance issues, nonprofit organizations are at greater disadvantage than their for-profit counterparts.

One way they can take on this challenge is with the proper monitoring of cash flow. Nonprofit entities use two reports to this end – the annual budget and a cash forecast.

They say "No Pain, No Gain," and the expression applies to the life cycle of nonprofit organizations, as well as athletes who hit the gym, tennis court or golf course on weekends.

The point when the aches and growing pains of an organization begin are prompted less by age than by changes in leadership, size, budget or programming.

Accurate, relevant and timely financial information is key to making good decisions for nonprofit executives and board members. But do all of your board members really understand the numbers they receive and what they mean to your organization?

For example, let's say you're trying to determine how and when to initiate a new program? Do the numbers you provide convey the right information?