Written by Erin Tanner, Chief Financial Officer, Central Indiana Community Foundation
Before looking at several tips to stabilize your nonprofit finances, let’s address the obvious. In the wake of the federal grant freeze and subsequent legal back-and-forth, an alarming level of uncertainty has entered the nonprofit sector. The Urban Institute recently created a map quantifying the risk level to nonprofits posed by the freeze. While it provides a critical level of awareness, it’s hardly comforting.
From the Urban Institute:
In all but two of the 437 congressional districts in the United States, the typical nonprofit could not cover its expenses without its government grants. And in every state, between 60 and 80 percent of nonprofits that receive government grants would be at risk of a financial shortfall.
Short of a reversal of government policy, nonprofits want to know what they can do to stabilize finances and ride out the storm as best they can.
I’d wager that most folks reading this article didn’t join a nonprofit to prepare financial statements, navigate an audit, or monitor cash flow. You likely got into it because you love serving your community.
Fortunately, there are accounting and finance professionals who are also motivated by that impulse. That’s good news because I believe the real magic happens when an organization has a top-notch finance team that’s just as dedicated as anyone to supporting a nonprofit’s mission.
The unavoidable truth is that money fuels our work. And when our finances are in good order, we become better servants to our community.
Despite very real and sudden challenges, we must find ways to stabilize our organizations as best we can so we will continue to fulfil our critical, even life-saving missions.
Here are five tips on how to do it:
#1: Do you utilize any federal grant funding? …Are you sure?
Just because a grant comes from a state agency doesn’t necessarily make it “state funding”. Many grants pass through the state but are fueled by federal dollars. If you rely on such funding, it could be in jeopardy. Confirm the ultimate source of your grant funding. The Assistance Listing Number (ALN) could be listed in sub-award agreements for federal funds.
If you are unsure of the origin of state or local funding you receive, or funding that may come from another nonprofit, please check with your funder.
#2: Get to know your banker and establish or renew a line of credit.
Does your organization’s bank have a nonprofit services team? If so, do you know the account representative at the bank who handles your operating account? Talk to them about establishing (or renewing) a line of credit. Having access to a line of credit can help you weather interruptions or payment delays. It can help you to make payroll or a large, necessary purchase, even when the timing with your cashflow is off.
To do this, you’ll need collateral. If you don’t have traditional assets (equipment, a building), that’s fine. You may be able to use your Accounts Receivable to secure a line of credit. Talk to your banker to find out how.
#3: Keep a close eye on your accounts receivable.
While we’re on the topic of cashflow, make sure you are mindful of how long your invoices remain open. The longer they’re unpaid, the more difficult they are to resolve. Over time, an invoice could get lost in year-end accounting or staff turnover. If you can, consider shortening payment terms. If you’re using net 30-day payment terms, consider net 15 or 10 – or even payment due upon receipt. Reducing the payment timeline and collecting on open receivables keeps cash flowing onto your balance sheet.
#4: Stay current with your annual audit.
Banks and granting institutions will often require audited financial statements in your funding applications. While it can be tempting to save money by having a review instead of an audit, a review may not always cut it. Instead, you may need a certified public accounting firm to conduct a full audit of your financial records. If you are a small to mid-sized organization, there are many CPA firms throughout central Indiana who have experience with nonprofits of your size who can help. Be sure to make this an annual practice. That way, you’ll always be ready for any funding opportunities that require audited financials.
#5: Cut operations / administrative costs through collaboration.
Nonprofits in our Central Indiana region have always worked well together. We can all use that collaborative spirit to save money. For example, does the financial information in this article intimidate you? Trust me, you’re not alone. But if hiring a full-time accountant seems too expensive or unnecessary for your size, reach out to similar nonprofit and see if they’d like to share the cost. The same goes for office space and other equipment.
Minimizing costs through collaboration has an added benefit: The less you spend on operations, the more you spend on programming. That better serves your community, and it’s attractive to potential donors.
Finally, here’s a bonus tip that applies to all the above:
If your board lacks a finance committee, or even a financial professional who can evaluate your finances and strategize around state and national developments, consider recruiting for this skillset.
Nonprofits provide social safety nets and critical services to some of the most vulnerable in our community, and that’s why it’s never been more important to make sure your money and your mission are working well together.
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