As an executive director, it’s essential that you protect the nonprofit financials. While you aren’t in charge of the board, you do need to report the nonprofit’s financial statements, and make a game plan. But what should you do when your nonprofit is in trouble?
It’s important to take action quickly when you suspect that your nonprofit is in financial trouble. Make sure your financial statements have been carefully prepared and give the board as much information as it can to act. Let your board know how much the organization has left in reserves, what its options are, and what your advice is. You can’t control the board, but you can advise it.
Most nonprofit organizations don’t fold just due to running out of money. Rather, they run down their cash and then experience an emergency that demands an influx of cash. If your cash reserves are running low, it’s time to assess and reduce the risks that could cause it to go even lower. The time to pull back and manage those nonprofit financials is now. If your organization needs to temporarily limit its operations, it’s still safer than forging ahead unchecked.
Concentrating on cash flow is critical during this time period. Boost your cash flow by cutting expenses and improving your income. Find ways in which the nonprofit can avoid additional expenditures while bringing more money in. Often, this is easier said than done, but looking at what has been successful in the past can help. Look at not just fundraisers, but ways your nonprofit can earn revenue. Do you have property or equipment that can be rented out? Can you provide in-kind services for other nonprofits that will reduce fixed costs? Of course, be sure to check your state tax laws before looking for opportunities to improve nonprofit financials.
Diversifying your nonprofit organization’s income is the best way to get through difficult times. Rather than relying on a single source of income, start exploring alternate methods. Check regularly with your state’s nonprofit association for ideas. Send reliable donors one more specific appeal than you normally would. The more sources of income a nonprofit organization has, the better.
Once your organization has finally broken out of its financial situation, it’s a good idea to start building a surplus. Just like a household, a nonprofit organization needs to have a healthy emergency fund. When the organization has a surplus, avoid the temptation to try to scale or try to use up the money. It’s incredibly important that your organization maintain a healthy buffer, so that emergency situations and times without funding do not take the nonprofit down.
Any time nonprofit financials are in peril, it’s time for swift action. You need to act quickly and decisively to help the nonprofit, but as an executive director, your primary goal is really to educate and advise the board. The more information and advice you can give them, the more they’ll be able to work together to implement your plans.
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