Rising costs, unstable funding and economic uncertainty are putting increased pressure on nonprofits. Maintaining financial stability is becoming more challenging—and more critical—than ever. 

Whether it’s inflation, the labor market or cybersecurity threats that are challenging you, it’s essential to keep your nonprofit consistently healthy.  Nonprofit leaders are facing many challenges today, and if making financial forecasts is more difficult than usual, consider taking measures that will fortify your nonprofit’s position. 

Strengthen cash flow management 

Your organization may be struggling due to funding cuts, rising costs, restrictions surrounding your funding, or perhaps tax law changes and other external factors that have led to reduced donations. Financial reserves have taken a hit across all types of nonprofits. And, for some organizations, fundraising is falling short of expectations. These factors make effective cash flow management essential.

Nonprofits should prepare cash and expense projections quarterly, monthly and possibly even weekly. To avoid being caught off guard, your finance committee needs to review regular reports on funding sources — particularly those that have dropped significantly or are in jeopardy of vanishing altogether. This should include monthly reports on key funding sources, including grants, major donors and recurring gifts. 

Plan for multiple financial scenarios 

Beyond monitoring cash flow, if it isn’t already part of your process, your finance committee (and appropriate staff) should run different financial scenarios. Assemble budgets for multiple revenue situations your organization could face — typically, best case, worst case and somewhere in between. Ask how your nonprofit could cover the projected expenses in each situation.

You also should scrutinize your nonprofit’s recent fiscal year’s financial performance for negative indicators by comparing metrics with previous years or other benchmarks. Review conditions that were present in the years your nonprofit seemed to have struggled; determine whether they still threaten your organization and could be a problem in the future.

Improve operational efficiency 

In addition to scenario planning, to keep your nonprofit economically healthy, you should always try to operate efficiently. This means minimizing expenses and monitoring budgets closely, including strategic planning and understanding true program costs so that measurable goals align with programs, staffing and fundraising costs and needs. This can help avoid any underfunding. A nonprofit’s operational effectiveness should also be part of the annual budgeting and planning process.

If you are looking for a firm to work closely with your team, whether it be financial reporting or compliance needs, or If you need help putting together a plan of action, contact one of our GT Reilly & Company not-for-profit advisors.



About the Author: Jayme F. Moore, CPA is a Vice President and Director at GT Reilly & Company and Chair of the firm’s Not-for-Profit Committee. She focuses on nonprofit regulations, accounting rules and audits. Contact her at jfm@gtreilly.com for more ideas on improving your nonprofit’s financial forecasting data.