Running a nonprofit organisation means having to spend money and organise finances very carefully. If that’s not done, the nonprofit won’t be fit for purpose, and there’ll be little purpose for its existence. Most nonprofits are set up to do positive things and help people. Of course, there are many kinds of nonprofit, and they all do different things. But none of them can fulfill their aims without money and financial control. Here’s what you should know about the financial side of running a nonprofit organisation.
Fully Cost Every Program, Project and Purchase
Every nonprofit has to spend money. A church might want to invest in stackable church chairs for church groups. And a charity might need to renovate its shop to attract customers. All these kinds of purchases and projects need to be fully costed and planned in advance. When an organisation is relying on people’s goodwill and donations, it’s only right that the money is spent in the right way. So, whether it’s a small purchase or a big program that the organisation wants to create, it needs to be done carefully and cautiously. It’s the only way to run a nonprofit in the proper way.
Fundraising
Nonprofits often rely on donations from the public and wealthy donors. This is how they stay afloat and help their chosen cause. Fundraising can take many different forms though. If the nonprofit organisation can appeal to a large proportion of the population, the sums of money donated can be huge. Even though each donation that is made to a charity or nonprofit is usually small, in total, it can add up to a large sum of money. Charities can often get money given to them by foundations that they are linked to. And there are many events and competitions that nonprofits organise to raise funds.
Audits
Because nonprofit organisations do work that is meant to be for the public good, they have a big responsibility. This is why many choose to have their accounts audited by an external inspector roughly once a year. This is not a requirement for all nonprofits, but it can still be a good thing to do. It is required of some nonprofits if a government requests it or when expenditure goes above a certain level. Having the nonprofit audited can do two things. First of all, it can help to show that the nonprofit is doing things by the book. And it can also add to public trust as it shows the organisation is being transparent.
Earned Income
For many nonprofit organisations, their main source of financing is earned. There are many types of earned income that a nonprofit might have. Through sales, a nonprofit can become sustainable and fund the positive work it’s aiming to do. In times when donations are fewer, such as in 2008 after the financial crash, earned income becomes more important. There are many different ways of earning income for nonprofits, and we have all experienced them in some form. For example, if you have attended a fun fair at a church, the money you spend will go towards helping the church. And kids groups such as the Girl Scouts make and sell cookies to make money.
Government Aid
There are many forms of grant and government aid that can be taken advantage of by nonprofits. It’s in the interests of the government to allow nonprofits to do important work. The more valuable work that nonprofits do, there is less for governments to do. Therefore, it’ important for people who run nonprofits to get the aid or tax breaks they might be entitled to. It’s something that can really push a nonprofit onto the next level and help it to achieve very positive things. Grants and aids vary depending on the location in which a particular nonprofit is based. So, doing research is vital.
Reserve Fund
It’s always good to have a financial buffer in place when you’re running a nonprofit organisation. This is simply common sense, and it can really help the organisation through some rough times. It can make the entire nonprofit more stable and less uncertain as it moves forwards. That money that you save as a reserve can be put to important use if other forms of funding do start to reduce. This happens from time to time in the nonprofit sector, and it’s something all organisation should be prepared for. Not being prepared in this way is an avoidable mistake that shouldn’t get made. It’s simple enough to create a reserve fund, so there are no excuses.
