Accounting is as important for profit-oriented organizations as it is for nonprofit organizations. It helps these organizations organize crucial financial matters such as grants, donations, budgets, purchases, and payroll.
Nonprofit organizations (including tax-exempt ones) are required to submit financial statements that will outline their annual financial activities to tax collection agencies. It goes without saying that all submitted reports should be accurately prepared. This is not achievable if accounts are not well-managed.
Here’s why aligning budgets with strategy is important:
- Nonprofit organizations with an efficient accounting system prioritize spending well towards achieving their mission,
- Donors are happy to fund organizations whose mission are similar theirs,
- Nonprofit organizations with operational manuals are more transparent and trustworthy than others.
Generally, nonprofits count on in-house accounting service to manage financial accounts, but this doesn’t mean expenses are incurred solely for the purpose of realizing the nonprofit’s mission.
Let’s imagine the following scenario: A nonprofit COO who has to manage a $1.1 million operating budget to achieve the nonprofit’s mission of securing an annual surplus of $600,000. Within a split second, we realize that the above figures hint that it will be impossible to secure a surplus of those margins. Under the above circumstances, how would a nonprofit succeed in aligning its budgetary plans with its mission?
COO’s can observe following areas:
Align financial goals with strategic plan
It’s important that nonprofits align their financial goals with strategic plans. By performing a SWOT analysis, the strengths, weaknesses, opportunities and threats can be properly assessed to ensure the available funds achieve the mission goal.
Objectives should align with forecasted financial costs. Each payment should bring the nonprofit closer to realizing its mission. For that reason, it’s important that the objectives are time-specific and realistic.
The above doesn’t mean strategic plans have to be permanent, they can be changed. Contingency plans are implemented to meet unexpected events like natural disasters. For nonprofit organizations to succeed in aligning financial goals with their strategic plans, budgets should mirror financial goals. Specific guidelines for achieving those goals should be developed beforehand.
Tweet this: One of the benefits of using digitalized performance indicators is that errors are rectified in real-time
Use performance indicators to measure progress
There is software (some web-based) that assist in measuring financial performance. If used properly, they help prevent accumulating losses. This could also be useful for checking how on-track the nonprofit is towards achieving its mission. It’s important that each decision made, brings the nonprofit closer to its mission.
One of the benefits of using digitalized performance indicators is that errors are rectified in real-time and good work continues without any delays. Funds are monitored by tracking all sent and received invoices. The success or failure rate of planned budgets can be measured to establish how effective plans have been.
Revisit previous financial reports at least quarterly
According to Guidestar (an online publication for NGOs), nonprofits can project expenditure by revisiting their annual reports. This can be done at least quarterly. Here’s how organizations can do this:
- By keeping a close eye on the balance sheet
The balance sheet shows how much money is available for the year. It reveals how much good work has been done.
For funds to cover all rising costs, extra funds are allocated. As is the case with many nonprofit organizations, available funds hardly cover all costs. Sometimes nonprofits are forced to campaign for more funds.
By keeping an eye on the balance sheet, nonprofits will know when the right time is to steer their ship back to the mission at hand.
- Management, not budgets, drive financial performance
Financials budgets would be meaningless without quality leadership. Management is expected to set a good example. All approved purchase requests should be done by the book.
Failure to end wasteful spend steers organizations away from realizing their mission. Aligning the budget with the mission requires accountability from management.
- Leverage all financial transactions
To set up budgets, nonprofit organizations have over the years relied only on Excel spreadsheets. Now there’s a new generation of software that can automate this task. A good example is Procurementexpress.com, software that can assist in setting up budgets, streamline purchasing processes and approve a purchase request in a blink of an eye.
A budget requires nonprofits to stay within a certain spending limit to reach financial goals. On our previous blog, we published some useful tips on why CFOs don’t have to worry about budgeting. Some tips worth repeating here are:
- To make sure budget processes allow for on-demand tracking,
- To check-in with spending habits of all departments regularly,
- To reconcile budgets on a monthly basis.
Here’s what one organization (no longer using Excel for purchasing processes) say about using Procurementexpress.com:
“We used to use an Excel doc, and it could take two weeks to process a purchase order. Sometimes the purchase order didn’t make it to accounting in time. But with Procurementexpress.com, we process purchase orders the same-day, and we know that deliveries will happen on time.”
Erik Zamora
Systems/Financial Analyst
Boys & Girls Clubs of Monterey County
If you’d like more info about Procurementexpress.com (an automated purchase control system), please contact us: [email protected]
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