The year is nearly one-sixth over. What shape are your organization’s finances in?
If you haven’t already done so, now is a great time for a quick financial check-up to make sure your organization is starting off the year on the right foot.
Here are three things to consider during your review:
(The information below is not, in any way, advice specific to your organization and shouldn’t be the sole basis of financial decisions. Instead, the following points are meant to be ideas for consideration. Before making financial decisions for your organization, consulting your finance team, board finance committee, or financial professionals is always a good idea.)
Budget realistically. Ask, “Does it cost $2 to spend $1?”
“Not all dollars are created equal,” states Neela Pal of Fiscal Management Associates. “Too often, nonprofits accept funding sources that inadequately compensate them or that distract them from their competitive advantage.”
In 2016, perhaps your organization should begin by asking whether that potential new funding source—contracts with unfunded requirements, for example—will cost you more than you receive. Will accepting this funding distract from your organization’s central mission? Are there too many unfunded costs associated with using the funds that will drain your budget?
Pal notes that these questions cannot occur any later than the very start of a conversation regarding the potential for a new funding source. “It is too late to step back and objectively reconsider once the dollars have already been committed to program budgets.”
These questions might lead you to decline a new funding source. Or, as Nonprofit Finance Fund’s Claire Knowlton notes, it might lead you to ask the funding source to cover the full costs of the program rather than a slice of it. But the point is that your organization needs to engage in this inquiry from the start.
Compare your organization’s finances with those of peer organizations.
If you’re a small, start-up nonprofit, it often isn’t very helpful to compare your organization’s finances to a large, well-established nonprofit. And certainly, the opposite is also true. In truth, the finances of your peer organizations—both mission and geographic peers—provide a better starting ground for financial comparison.
Enter: Financial SCAN—a product that combines the nonprofit information from GuideStar with the nonprofit finance expertise of Nonprofit Finance Fund. With just a few clicks, your organization can start 2016 with a quick financial check-in and compare your organization’s financial performance with those who have the most in common with you.
Want to see Financial SCAN in action? Join us on March 3, 2016, for a live, interactive demonstration. Register for the event here.
Face depreciation head-on and use it to make smart funding decisions.
That computer your organization just purchased, the chair you’re sitting in right now, and the other big-ticket equipment your organization owns all have a couple of things in common.
For one, they all cost something, and your organization must have decided how to finance those costs.
Beyond that, they all also depreciate—an accounting term that attempts to adjust for the fact that, at some point, that computer is going to be slower than molasses and that chair is going to break. If your organization had to sell everything it possesses, each of these items would sell for less than it cost initially. So, in other words, the value of these assets will at some point—maybe immediately—depreciate. Often, this loss in value is accounted for through a depreciation expense, which spreads loss in value of an asset over a period of time—often three, seven, or even more years.
But ... wait a second, did your team use that computer exclusively? What about that chair—is it in a shared space that other teams had access to? More to the point, should your team be solely responsible for the asset’s loss in value?
Sometimes, yes. Sometimes, no.
The key point here is that you ask these questions. In the long run, properly allocating a depreciation expense to the appropriate team—or spreading it across teams—can allow your organization to be more financially sound. “With a proper allocation system in place, depreciation expense will be shared appropriately among each department or cost center in your organization. In turn, the funders of each program will pay for their fair share of the depreciation expense. This is reasonable to ask of your donors because we are using the fixed assets to do the important program work they fund,” confirms Curtis Klotz of Nonprofits Assistance Fund.
So, before too much time passes, begin thinking about the depreciation expense in terms of actual use of the asset, and log that use appropriately. If you do, allocating the depreciation expense later will be much easier.
These three items can help you re-assess your financial start to 2016, getting you off on the right foot for continuing to do great things for your constituents and community.
What do you think? What steps does your organization take when it performs a quick financial check-up? Drop your ideas in the comments section below!
The preceding is a post by Cody Cassady, GuideStar's Marketing & Outreach Coordinator. Cody is responsible for assisting in the management of advertising and marketing relationships and managing GuideStar’s extensive webinar program. Cody is also responsible for working with nonprofits of all sizes to maximize their potential on GuideStar. An upcoming nonprofit accounting and finance professional, Cody comes to GuideStar with extensive experience within the public sector and a Bachelor’s degree in Business Administration from the University of Central Florida.