In fact, a recent survey from La Piana Consulting revealed that the financial health of 73% of nonprofits were severely impacted by COVID-19.
Indeed, many experts are now calling on nonprofits to become more financially literate. However, financial literacy can do so much more than just getting you through periods of economic uncertainty.
As previously discussed, nonprofits get their funding from multiple sources, including mobile fundraising. Keeping track of it all can get complicated, especially if employees are spread thin working in multiple departments. And it might even be exacerbated by the redundant grant applications that most nonprofits have to file, year after year.
Yet despite this, many nonprofits tend to spend most of their money in the short-term, such as for operating costs and program expenses. This means not investing in long-term infrastructure.
That's why, though nonprofits are generally tax exempt, managers need financial literacy to understand cash outflows on top of inflows, especially if they want to maintain operations into the foreseeable future. They can then cut down costs without sacrificing the organization's core functions.
For example, if your nonprofit relies on a line of credit or even a credit card, you might find that there are a lot of fees that come with using credit. A guide to credit fees by Petal Card highlights how many of these can be eliminated if you do your research. Avoiding penalty fees and finance charges is possible with sound financial governance, while foreign transaction fees and statement fees can be waived with your bank.
In turn, by lowering expenses, your organization will then have enough money to prepare for unexpected circumstances, especially economic unrest.
In many nonprofits, people are hired for their expertise in the organization's specialized purpose. For example, nonprofits that focus on women's rights usually hire those familiar with the law, or those with a women's and/or gender studies degree.
So when it comes to financial planning, many staff members may not have the knowledge needed to understand their organization's financial health. The resulting budgets may be confusing to look at, or not cover all the areas necessary to form a complete picture of the organization's current status.
As such, investing in financial literacy education for your staff will help them understand the true cost of what it takes to run a nonprofit, resulting in budgets that are both realistic and efficient.
Knowing how to budget properly will also help you and your donors better visualize where the money is going, so you can prioritize which projects to fund on top of your operating costs. Plus, it'll help you keep your preferred tax designation, too.
Data-driven decision making
Being financially literate means that data will form the basis of your organizational decisions. Dashboards help by acting as visual aids that synthesize the status of the organization.
In particular, Nonprofit Quarterly explains that financial dashboards can give real-time insight on a nonprofit's financial health. The simple yet comprehensive visualizations they provide make donors confident that they know exactly where their money is going. It makes your operations more transparent, too, meaning that for the sake of bettering the organization, staff members will feel empowered enough to act as whistleblowers if they feel that your funds are being spent unethically.
More importantly, dashboards allow you to see where you need to make plans geared for the long-term, such as when to start diversifying your fundraising strategies. It's important to recognize when your current strategy is becoming less effective, and having a good system for monitoring financial markets and nonprofit KPIs is crucial for doing so.
Because of the changing times, the relevance of your nonprofit to your original target demographic may have changed, so you might have to start pitching to other audiences, as well. However, it's more likely that your organization hasn't been able to keep up with the fast-paced world of digital media.
That's why it's also wise to start investing in tech upgrades, given that you have a good foundation on finance and fintech. You can follow the trend of using chatbots, which, according to Business2Community, makes your services more accessible, and puts your organization at the forefront of tech-savvy nonprofits. You can also boost productivity and lower your overhead costs by using programs to automatically arrange the monthly payroll or send out monthly newsletters. By automating manual tasks that are done on the daily, your staff can focus on other things.
On the whole, it's safe to say that financial literacy can do more than help you save money. It can open your nonprofit to an exciting array of opportunities for growth, and it does so in a data-driven manner that means less risk for you. This means that such innovations can only help your organization serve your beneficiaries better!
About the Author
Ruthie James is a financial advisor who specializes in crafting budgets to help a variety of clients get the most out of their hard-earned savings. When she's not crunching numbers, she likes to head out to her local park for an afternoon of birdwatching.