Good financial management. On its face, it’s a self-evident, universally understood principle on which all nonprofits must operate to be sustainable and effective – and to meet donors’ expectations.
What’s inherent in “good financial management,” though? It’s more than acting ethically with other people’s money. For nonprofit leaders and board members, it must include understanding issues such as budgeting, investing, financial statements, planning, reserves, and transparency.
Financial acumen isn’t a given. Our Financial Literacy and Knowledge in the Nonprofit Sector study revealed a surprising disconnect. While 76 percent of financial managers at mid-size nonprofits (those with revenues of $1 million to $5 million) said they are knowledgeable about financial principles, only 36 percent scored well on a basic assessment.
The study found strengths and gaps. Among financial managers, 80 percent were knowledgeable about financial controls, but only 46 percent knew about debt restructuring. Most boards were involved in accountability (66 percent), but just over a quarter were involved in budgeting and scenario planning. Less than 40 percent had an audit committee.
The findings reveal an obligation for nonprofits to fortify their financial skills to better forecast needs, navigate economic instability, and manage risk.
Donors are demanding it. In the Center’s 2010 Bank of America Study of High Net Worth Giving, 71 percent of wealthy donors said they gave when they knew the organization was efficient in its use of donations. Among donors’ most important expectations of the nonprofits they support:
Succession planning is demanding stronger financial leadership as well. Daring to Lead 2011: A National Study of Nonprofit Executive Leadership found that the recession has exacerbated executives’ frustration with unsustainable financial models. One of the study’s calls to action is to “advance the understanding of nonprofit financial sustainability,” which will require many executives to improve their financial management and analysis skills.
If you’re ready to take the next step, The Fund Raising School and the School of Public and Environmental Affairs offer a two-day nonprofit financial management class, which also helps you earn your Certificate in Nonprofit Executive Leadership.