Everything goes more smoothly with a defined process and responsibilities.
If you’re working through organizing your nonprofit’s structure, setting up clear financial guidelines and structure can seem daunting.
But with the right procedures and roles in place you can create transparency with your stakeholders, staff, donors, and those you serve. You can also increase trust for your organization.
Financial Guideline Suggestions
Setting up clear and quality guidelines for the financial processes of your organization will help with stability and longevity as well as transparency. As you go about building your financial structure, here are some best practices to consider:
Define and Separate Financial Roles
As an organization, you’ll collect incoming funding as well as have outgoing expenses. To create more transparency and a system of checks and balances, you’ll need to make sure more than one person is managing the funding coming in and going out, whether it’s a board member or staff members.
Here are some tips to follow to keep things separate and accountable:
- The person receiving any checks or payments should be a different person than the one entering them into your accounting system.
- All checks should be made out to the organization, not to an individual.
- Expenses should be approved by someone other than the person processing payment.
- The person signing the checks should be a different person than the one approving payments and the one processing the payments.
These steps will help create transparency and build a clear financial structure within your nonprofit organization. The people involved can be the staff, volunteers, and/or board members. It may also be a good idea to work with an outside accounting firm who will easily be able to follow regulations and ensure compliance for taxes and other necessities. An outside firm can assist with everything from payroll to donations.
An Independent Board
As a nonprofit, your organization should be overseen by an independent board. This is another layer of separating financial responsibilities for a strong financial structure and to increase transparency. Independent boards also help to reinforce fulfilling the mission by steering the organization to serve the public and avoid any conflicts of interest.
The board should include a diverse mix of stakeholders to oversee how the nonprofit is managed. While a board, collectively, will have decision-making responsibilities on everything from organizational policies to strategy, their role is oversight, not execution of tasks.
The board is responsible for:
- Authorizing major financial transactions
- Setting the strategic plan and goals
- Protecting the organization’s resources
- Mentoring organizational leadership
Working together, the board and leaders fulfill the mission of the organization while also meeting the needs of multiple stakeholders.
Fully Outline Program Costs
To keep your mission moving forward, it is essential to know in great detail the costs for providing your services and supporting your programs. Everything from staff salaries to program expenses will help you define your budget and know what sort of fundraising levels you’ll need to hit. This will also help for outlining grant proposals and sharing your budget information publicly (to build transparency and trust).
Setting a Budget and Defining Overhead
Nonprofits are required to detail functional expenses, including cost of services, administration costs, general overhead, and fundraising expenses. It can be better framed if you communicate these necessary supports of running your nonprofit as infrastructure, or core mission support.
As you set up your budget, clearly define where investments are going, where you expect to see increases, and what line items may grow as your program or services grow. You can prepare the budget for public review by framing each cost in its impact to the mission. Fundraising support has an expense but results in dollars raised to fund your mission. Administration has a cost, but without it, your program wouldn’t have the structure to operate and fulfill its mission.
Experienced accountants who have worked with nonprofits will have the ability to guide you and help you to both build your budget and present it in a successful way.
Regular Financial Reporting
Working with an accounting firm can also provide your leadership and your board members with timely and accurate financial reports. You’ll be able to review year-to-date balances, see areas where you need to adjust, and work to set fundraising and/or grant goals.
Working with an outside third party on your finances can help keep operations running smoothly while also providing the right information when it’s needed for your review and analysis.
Finances are a big piece of how a nonprofit operates, even though its purpose is not to make a profit. From board oversight to program costs and budgeting development, having the right separation of roles and financial reporting in place can make an impact on the effectiveness of a nonprofit.