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Financial Management Resources

Nonprofits are created to solve problems or meet needs that for-profits are not addressing because there is no profit in it. Yet, nonprofits cannot be successful unless they can generate revenues in excess of expenses from grants, donations, contracts, and fees. The truth is that it can be difficult to generate more revenue than expenses in the nonprofit world. In almost all cases, we cannot total up our costs, add a slice for profit and new investment, and charge it back to a customer. In fact, for most nonprofits, our programs are an expense, not revenue.

Adding to the difficulty of our business model is that there are many reporting requirements and special rules attached to money in the nonprofit sector. There are special tax rules at the federal, state, and local level and very specific accounting rules to follow.

Four Essentials of Nonprofit Financial Management

There are four essentials to managing your budget:

  1. Periodic outside review by an independent professional
  2. Clear policies and procedures, and strong internal controls
  3. Transparency, accuracy, and careful monitoring of financial conditions
  4. Board and leadership understanding of the financial reports

Audits and Other Outside Reviews

Neither donors nor boards and managers should rely on the audit process alone to assure that the organization is managing its finances appropriately. Most organizations should receive some level of independent financial assurance service. Annual audits are highly recommended for large organizations and those with federal contracts, while a two-to-three year cycle of audits and financial reviews are suggested for smaller organizations. If your organization is preparing for a financial audit, you will find some helpful information in this Nonprofit Audit Guide from the National Council of Nonprofits.

In addition, the National Council of Nonprofits article How Much Should an Independent Audit Cost? provides factors to help you negotiate audit fees and plan for the cost.

An organization that does not have the financial capacity to pay for an audit should periodically find an accountant or bookkeeper familiar with nonprofit financial requirements to review their books, financial reports, and processes. This will not be the same as an audit, but it can help you recognize and rectify major problems.

If you need to select an auditor, search under "Financial Management - Audits" in the Resource Directory. The audit firms listed there have been screened and come recommended by other nonprofits.

Policies, Procedures, and Internal Controls

The resources below provide guidance and tools so your organization will have key policies and internal controls in place. Small and/or all-volunteer groups: check out the resources below that are especially geared for you.

Monitoring of Practices and Performance

The leadership and board must monitor the organization's financial performance to be sure that it's:

  • Fulfilling its grant and donor requirements
  • Complying with GAAP financial practices (Financial Accounting Foundation)
  • Managing cash flow -- Use the 501 Commons Cash Position & Cash Flow Workbook to help you determine your cash position and forecast cash flow.
  • Monitoring the budget
  • Meeting all tax obligations
  • Ensuring that staff have the resources they need to do their jobs

It is of vital importance that you closely monitor cash flow and cash position.

Cash position refers to the amount of available cash your organization has. Cash flow projects the amount your organization expects to receive and pay out over a period of time. For more information, see:

Speaking of taxes, read What Not-for-profits Need to Know About Tax Compliance (Jacobson Jarvis & Co.) to ensure you understand your obligations, especially those unique to nonprofits.

Understanding of Financial Reports

Your financial statements tell your story to government, donors, volunteers, and foundations. If you do not understand the story the statements are telling, your fundraising activities may not be as efficient as they could be.

  • The income statement, also known as the statement of activities, reports on the organization's income and expenses for the period. It can hurt your fundraising efforts if this shows an unexplained large deficit or large surplus.
  • The balance sheet, also known as the statement of financial position, describes the organization's assets, liabilities, and net value. If you have high liabilities compared to your cash, the organization may be seen as unstable.
  • Funders and donors are also interested in understanding how broad the organization's sources of income are and the ratio of overhead and fundraising expenses to direct program expenses.

This one-page Financial Red Flags Checklist gives you some ideas about concerns a foundation, government contract officer, or individual donor may have based on a review of your financial statements.

Additional Resources

Financial Management - National Council of Nonprofits; see 2018 Tax Law Checklist - New Federal Tax Law - Now What for Nonprofit Board and Staff Members? updated April 17, 2018; and, watch the information rich hour long webinar Now What:  How the New Federal Tax Law Impacts Charitable Nonprofits, from January 11, 2018

The Nonprofit Association of Oregon (NAO) Financial Oversight website provides Professional Development & Learning networks, workshops & webinars, plus resources

Board Members Finance and Accounting Booklet

Nonprofit Finance 101 - Nonprofit Finance Fund

Nonprofit Accounting Basics - Greater Washington Society of CPAs Educational Foundation, updated February 2019

Resources for Nonprofit Financial Management - The Wallace Foundation

Does your organization have the right bookkeeping software on hand? Check out this list of best accounting software for nonprofits.