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Nonprofit Financial Literacy: Managing Funds Responsibly

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A guest post by Chris Troupe of UnionWare

As a nonprofit professional, one of your goals is to raise as much money for your cause as possible. However, if you’re like 47% of American adults who give their financial literacy knowledge a grade of “C” or worse, you might not have all the knowledge you need to achieve the best results possible for your beneficiaries.

By building a firm foundation in financial literacy and continuously expanding your skills, you can help sustain your nonprofit’s growth and guarantee its longevity. You’ll also be able to communicate more effectively with donors about your impact, fortifying trust and your relationships with them.

As we explore the fundamentals of nonprofit finances, remember that financial needs might change significantly over time, so treat these tips as the building blocks of your strategy.

Understanding Financial Basics

Financial needs vary greatly depending on a nonprofit’s size and niche, but the same general principles apply. Your team should be familiar with the following financial terms and concepts:

Budgeting

  • Cash flow is the total amount of money transferred into and out of a nonprofit in a given period of time.
  • Revenue streams are different sources of revenue that contribute to mission-critical efforts and overhead costs. For instance, nonprofits can rely on donations, grants, and e-store purchases to fund their mission, while member-based organizations like unions might rely on dues.
  • Assets are tangible (property) and intangible (fundraising revenue) items a nonprofit controls that add value.
  • Liabilities are debts or obligations nonprofits owe to other entities (like banks or the IRS).
  • Restricted funds come with specific rules for their use, usually from a grantmaker.
  • Unrestricted funds are awarded without specific conditions for how they can be used.

IRS Forms

  • Form 990 is an annual form reporting all nonprofit financial activities and is required to maintain tax-exempt status.
    • Form 8868 is for nonprofits to request an automatic 6-month extension to their Form 990 deadline.
  • Form W-9 requests taxpayer identification for grant recipients, vendors, and contractors receiving payments from a nonprofit.
    • Form 8283 is required for donors who contribute over $500 in non-cash gifts to a nonprofit to claim tax deductions.

Financial Roles

According to Jitasa, here are the prominent financial roles in the nonprofit world:

  • A bookkeeper is responsible for daily financial record-keeping activities, like tracking expenditures, managing payroll, and writing checks.
  • An accountant is responsible for financial analysis based on the information your bookkeeper maintains.
  • A treasurer is the leading financial expert on your board of directors, overseeing your financial policies and reporting on progress to the rest of the board.
  • A chief financial officer (CFO) is a staff member who strategizes for a nonprofit’s financial future based on cash flows, grant funds, and more.

Creating a Sustainable Funding Strategy

Inspiring donors to give is only the first step in securing reliable funding—here are other best practices to get you started:

  • Over-estimate your expenses. Mitigate the impacts of expenses as much as possible by creating a cushion in your budget. Doing so helps you prepare for worst-case scenarios and come out ahead.
  • Cultivate long-term partnerships. Building relationships with donors, sponsors, or grantmakers from the ground up is time- and resource-intensive. Staying connected with supporters you’ve already built a relationship with can help you earn funding more efficiently.
  • Diversify your revenue streams. Relying on just one funding source can jeopardize your nonprofit if anything happens to that stream. Instead, implement a diverse fundraising strategy that might comprise traditional donations, corporate sponsorships, peer-to-peer fundraising, and grants.
  • File tax forms on time. According to File 990, filing Form 990 late compromises your tax-exempt status and can result in additional fees for your nonprofit. Submit Form 990 well before the deadline and file an extension request if you can’t meet it.

Ensuring Compliance and Transparency

With special IRS distinctions and duties to donors come special compliance requirements. After all, your donors deserve absolute transparency into what you’re spending their money on. Ensure you understand the following compliance and transparency best practices:

  • Create an annual report explaining your past year’s activities, accomplishments, and financial performance.
  • Maintain accurate financial records with the help of your financial team so you can convey your impact accurately to supporters and the IRS.
  • Implement internal financial controls like separation of duties, dual approvals for expenses, and audits to prevent intentional and accidental fraud.
  • Implement a conflict of interest policy, so staff and board members disclose any conflicts that might influence decisions to their benefit.
  • Address supporter concerns openly and honestly so you don’t mislead anyone and breach their trust.
  • Brush up on IRS regulations each year, both at the national and state levels, to remain compliant throughout policy changes.

Take the time to help donors understand your nonprofit’s financial decision-making and the state of your financial health. Doing so demonstrates to donors that you value their input regarding your financial strategy and boosts their engagement in the long run.

Using Financial Management Tools

Some nonprofits don’t have the resources to hire a full in-house financial management team, but there are low-cost and easy-to-use solutions you can leverage to stay effective. For instance, you could hire a fractional CFO or nonprofit accountant for a lower investment than a full-time team.

For a more independent approach, your nonprofit can use financial management software to reconcile your data and strategize for future growth. Some well-known solutions include QuickBooks for accounting and Bloomerang for donation reporting and processing.

Every nonprofit’s ideal tech stack looks different. The only must-have is a solution that meets your needs and niche. For instance, union management software likely has different functionalities than association management software, so choose the solution most aligned with your needs.

Remember, this guide is only the beginning of your financial literacy journey. Take courses from reputable sources, attend conferences, ask trusted colleagues questions, and stay on top of financial trends to ensure your knowledge evolves over time. It takes practice and patience, but soon, these financial best practices will become second nature and empower your nonprofit to grow sustainably.

Chris Troupe

Chris Troupe is the Marketing Manager at UnionWare, a membership database and organization platform for Trade Unions. Chris supports organizations in streamlining operations, automating communications, and building strong communities.

New to Grant Writing? You Need These 3 Fundamental Tips

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A guest post by Meredith Noble of Learn  Grant Writing

What if your nonprofit’s newest program, the one you most struggle to find room for in the budget, was fully funded for the next year?

What else could your organization accomplish with this breathing room? How much time would you save on fundraising, or what could you do with the funds that would otherwise go to that program?

Grants unlock growth for nonprofits through this beneficial ripple effect.

However, grant seeking also has its challenges, and you might feel held back. After all, it takes time and know-how to win grant opportunities.

As a newcomer, you can set yourself up to exceed your expectations with some easy first steps and fundamental practices. We’ll share three get-started grant writing tips that benefit nonprofits of all sizes.

1. Learn how to prioritize grant opportunities.

As you explore grant directories, you’ll start finding exciting grant opportunities. They may stand out for several reasons, like their dollar values, the funder’s clout, or their alignment with your proposed project.

If you’re comparing a few grants, do not blindly commit to the one that feels the best based on just one of these factors.

To choose grant opportunities like a pro, you need to effectively compare and prioritize them. After all, you have limited time and resources to apply for funding. Give yourself the best shot to make your hard work count!

Take the time to compare potential grants based on three key factors:

  • Alignment. How closely will your proposal satisfy what the funder is looking for?
  • Competition. How many other nonprofits are likely to apply for this grant? Is the funder very well-known or more locally active?
  • Efficiency. What’s the return on investment (ROI) you’ll get from applying, i.e., is the grant’s dollar value literally worth the time you’ll spend working on the proposal?

There’s no exact science to grant prioritization. You’ll need to strike a delicate balance based on your organization’s priorities. Remain aware and mindful of these factors and your nonprofit’s needs. Don’t neglect this process—you can’t get your time and hard work back once you’ve put a proposal together!

A note on grant ROI: When considering the potential ROI of a grant, you’ll first think about the funding itself, the primary return on the work you invest. Grants offer other benefits, too, like grant writing practice, new connections with funders, and building your track record.

You may apply for a lower-value grant to tap into these secondary benefits. This trade-off can help you overcome your learning curves, and that’s fine! Just understand your rationale so that you can effectively advocate for why you need to keep pursuing grants later.

2. Gather your critical documents, then write fast.

Grant writing has many moving pieces. It’s easy to get bogged down in the volume of information that some funders request. This tip will help you keep moving forward confidently.

First, identify what you’ll need outside of the sections of the proposal itself. Grant applications typically ask for several other attachments, like:

A diagram showing the key sections of a grant proposal and common additional attachments, which are listed below

  • An official Resolution from your board
  • Risk assessments for your project
  • Details about relevant partners
  • Letters of support from peers
  • Data appendices to back up claims
  • Copies of up-to-date IRS documents

Gathering these materials can take a while. When was the last time your board did something quickly? Get the ball rolling early on Resolutions and anything else that requires their sign-off.

Other materials can be gathered throughout the grant writing process, assuming you have a clear schedule and deadlines in place (more on these next). You’ll also need data and stories to bring your proposal to life. Use what you have on hand, remembering that you can add more later.

When you have what you need to write a solid first draft of your proposal, get started and write it quickly. We’re talking in a day or two. Focus on the core narrative of your proposal and shape it according to the funder’s specific requirements.

Then, after writing your first draft and ensuring it aligns with the requirements, go back to expand it. Reinforce the logical connections in your arguments. Add details, data, and stories that better illustrate your plans.

Next, have a peer proofread the proposal and check for any issues or improvements. Finalize your draft, attach the supplemental documents, submit it, and take a breath.

3. Bolster your logistical skills.

The meat and potatoes of grant writing consist of choosing grant opportunities and drafting proposals. What about everything else you use to cook your meat and potatoes? The stove, seasonings, and utensils are not the most fun parts of your recipe, but you can’t really make a satisfying meal without them!

Tons of back-end logistical skills go into grant writing success. The best grant writers are master communicators, project managers, and organizers.

  • Communication. Host a kickoff meeting for the grant to review what’s needed from whom and when. Then, host regular check-ins or establish a schedule for email-based progress reports along the way.
  • Project management. Clearly assign specific elements of the grant application to individuals and provide deadlines. Create schedules or calendars that compile all the moving pieces into a coherent whole leading up to the final submission deadline.
  • Organization. Ensure your team has the tools to easily share files and collaborate on documents. Establish specific file naming conventions and save locations.

As you begin grant seeking, don’t cobble a process together as you go. Be intentional. Managing and keeping your funding after winning a grant hinges on these same skills, so you really can’t afford to neglect them.

There are many resources and tools available that can help you build more organized and sustainable internal practices for grant writing. Grant writing courses that cover the entire funding lifecycle are often a wise investment for teams that want to sustain this revenue source.

Meredith Noble Head ShotMeredith Noble is the co-founder of Learn Grant Writing, an online membership for those building their careers in grant writing. Her book, How to Write a Grant: Become a Grant Writing Unicorn, is a bestseller for nonprofit fundraising and grants. Her expertise has been featured in NASDAQ, Forbes, Fast Company, Business Insider, and other top publications. She has secured over $45 million in grant funding, and her students have secured over $627 million – a number that grows daily. If Meredith’s not biking or skiing in Alaska, she can be found curled around a steaming cup of green tea and a good book.

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