finance - Adam Gant | Philanthropy

Running a nonprofit comes with more complications than a standard business, especially on the financial side. For one thing, all nonprofit organizations must deal with increased oversight.

There are certain ways that the finances for a nonprofit must be handled, from creating a plan to comparing results against a budget and everything in between. The whole process may feel like a headache at times, but overall it is a worthwhile endeavor that will ultimately result in success.

Additional Challenges

There are additional challenges that come with managing the finances for a nonprofit organization. There are the above concerns (oversight, tracking, etc.), but there are concerns such as taxes, paperwork, transparency, donor involvement, and expectations. Not to mention dealing with the public trust.

Financial Policies

Nonprofit organizations have a board of directors, and in turn, they have a fiduciary duty to ensure how the money is used within the organization. That is to say; they have to ensure that the promises made by the organization are kept.

One way that a board of directors will ensure this is by creating one (or several) policies. These policies will create a rule and description for how the money is handled, invested, or distributed.

An example of a nonprofit financial policy would be a conflict of interest policy. A conflict of interest policy protects the nonprofit in a variety of ways. For one, it would require those with a conflict of interest to take a step back or otherwise disclose the conflict. In turn, this protects the nonprofit from penalties while hoarding the board accountable.

The Council of Nonprofits has a list of possible financial policies for nonprofits, including gift acceptance policies, best practices for reimbursement, annual review of executive compensation, nonprofit Fiscal policies and procedures, and more.

Tools and Resources

When looking for tools and resources for a nonprofit, the National Council of Nonprofits is one of the first tools to approach. On top of making documents readily available, they actively work to keep up-to-date information for all nonprofit organizations.

Another available resource is the Financial Management Associates Insitute. Through them, nonprofits can find financial management courses—everything from excel basics to full accounting classes.

The Basics

Every nonprofit organization will need to have a plan for the basic parts of their financial planning. They will need a bookkeeping solution (one that is friendly to nonprofits and easily accessed for audits). On that note, they will also need to find the right accounting software or plan and work out the funding for it. Once that is established, immediately begin tracking all donations that come through. This may require some level of customization.

If the nonprofit doesn’t have a bank account, now is the time to get one. Once that is done, get bank reconciliations going. Finally, any nonprofit will need to learn how to create (and analyze) financial statements and reports.

Decide Where the Money Should Go

Those who are looking to give to charity should first choose where the money is going to go. It’s a good idea for people to prioritize giving to organizations that have missions that truly resonate with them and their personal values. Otherwise, there will not be as much incentive to give on a monthly or annual basis.

Make Payments Automatic

Popular personal finance writers Ramit Sethi and David Bach argue that saving should be automatic. Otherwise, there will be nothing left at the end of the month to save. Likewise, those who are looking to give to charities should make their donations automatic. This means listing them as a line item in a monthly budget. Charities that make monthly draws from a checking account or a credit card can make the process quite easy. Those who give only what’s left at the end of the month will likely have nothing left to give.

Give Time

Providing for the needs of charitable organizations does not necessarily have to involve money. While all organizations need money to operate, there are other ways to give back. The most common of these options is giving time. Spending some time working toward the mission of a charitable organization can be a great way to help out even when finances are tight. It costs nothing monetarily, but giving time and effort can really help a charity achieve its goals.

Gift Appreciated Assets

Those who have quite a bit of wealth usually have it because they legally minimize the amount they pay to the CRA each year. One way to help out a charitable organization is through a gift of appreciated assets. Most commonly, this would involve a gift of a company’s stock. Those who sell stock for a profit can owe some hefty capital gains taxes. By giving stock to a charitable organization, the original owner will avoid some taxes, and the charity can benefit from a higher cost basis. These gifts will frequently provide some nice cash flow to charities through regular dividend payments.

Budgeting for charitable giving is important. Those who have little monetary wealth can benefit from giving back, and those who are wealthy can benefit from giving back while simultaneously cutting their taxes. Charitable organizations rely on gifts, and planned giving on the part of donors can allow them to plan for the future.