By Jill Robisch, First Vice President and Manager, Nonprofit Services, The National Bank of Indianapolis

Nonprofit organizations play a crucial role in addressing social issues and serving communities. However, just like their for-profit counterparts, nonprofits must ensure sound financial management to fulfill their missions effectively. Monitoring the financial health of a nonprofit is essential for maintaining sustainability, transparency, and trust among stakeholders. Here are some best practices for keeping a close eye on the financial well-being of nonprofit organizations:

Establish Clear Financial Policies and Procedures: Implementing robust financial policies and procedures ensures transparency, accountability, and compliance. These policies should outline guidelines for budgeting, spending, fundraising, and financial reporting.

Regular Financial Reporting: Nonprofits should generate regular financial reports, including income statements, balance sheets, and cash flow statements. These reports provide insights into the organization’s financial performance, trends, and areas needing improvement.

Budget Monitoring and Variance Analysis: Develop an annual budget aligned with strategic goals and regularly monitor actual expenses against budgeted amounts. Conducting variance analysis helps identify discrepancies and allows for timely adjustments to ensure financial stability.

Diversify Revenue Streams: Relying heavily on a single source of funding exposes nonprofits to financial instability if that source diminishes or disappears. Diversifying revenue streams by pursuing grants, donations, program fees, and earned income opportunities reduces dependence on any single source and enhances financial resilience.

Maintain Adequate Cash Reserves: Building and maintaining sufficient cash reserves provide a safety net during unexpected financial challenges or emergencies. Aim for a reserve level that covers several months of operating expenses to ensure stability.

Engage Board Members: Engage a knowledgeable and diverse board of directors with expertise in finance, accounting, and nonprofit management. Board members should actively participate in financial oversight by reviewing financial reports, asking pertinent questions, and providing guidance on financial matters.

Adapt and Plan for the Future: Nonprofit operate in dynamic environments, and financial monitoring should adapt to changing circumstances. Continuously assess risks, anticipate future challenges, and develop contingency plans to maintain financial resilience.

By adhering to established best practices, nonprofit organizations can actively monitor their financial well-being, enhance accountability, and maintain their effectiveness in serving communities. To gain further insight into these best practices and ensure organizational sustainability, we invite you to participate in Session 3 of The National Bank of Indianapolis Nonprofit Training Series, focusing on Monitoring Financial Health. The session will take place virtually on September 10th at Noon. Registration at
https://www.eventbrite.com/e/950175399197?aff=oddtdtcreator