01 Jun Finance Basics for the Non-Financial Aspiring Leader

By Jackie Sue Griffin, MBA, MS

Moving toward more significant leadership positions in your nonprofit organization means broadening your understanding of the entire organization to make the most effective strategic and tactical decisions. Finance is one of the main pillars of any nonprofit organization; therefore, building financial understanding into your skillset is vital for your advancement.

Here are some valuable tips for an aspiring nonprofit leader with a non-financial background:

Understand Budgeting

Budgets are crucial because they provide the financial information to support all organization’s planning. Effective budgets are realistic, using reasonable assumptions and clear accountability to achieve those assumptions.

Understand Program Costs

Sound financial decisions rely on good information. You must understand the actual costs of your nonprofit’s programs to make decisions about fundraising needs, contract terms and program expansion.

Diversifying Funding Sources

While it sounds great, diversifying funding sources isn’t easy, and it’s not necessarily a smart move. Why? Because diverse types of income require different structures, systems, relationships and communications. Understand the pros and cons.

Core Mission Support

Nonprofits must account for functional expenses (program services, administration and fundraising), often referred to as overhead. While lowering costs may sound appealing to donors, in reality, it can be destabilizing and unsustainable. As a great leader, make the case by changing it from “overhead” to “core mission support.”

Monitor Daily Cash Flow

Cash in the bank pays the bills, which often matters more than any financial statement or a long-term plan. You can monitor and manage cash flow with a couple of basic management tools.

Financial Information

To be an effective leader, you must develop financial literacy. This includes learning the terminology, understanding and using financial reports and asking plenty of questions.

Operating Reserves

Every nonprofit organization needs some cash in reserve to respond to an unexpected opportunity or downturn. As an aspiring leader, you must learn the golden number that your organization strives to maintain and how your nonprofit builds its reserves.

Accountability and Transparency

Between the Attorney General, the Internal Revenue Service (IRS), donors and foundations, everyone requires information and answers about how your nonprofit receives and uses its financial resources. That’s why you must choose to make accountability and transparency important organizational values.

Financial Integrity

Nonprofits are held to a high standard of integrity and honesty in all financial activities as public charities. While internal controls, policies and job descriptions help maintain this integrity, they must be built on the foundation of values, mission and leadership.

Responding to Financial Problems

Things sometimes go wrong, contracts get lost, fundraising plans fail and expenses go through the roof. Responding to various financial issues requires strong leadership, creative planning, good communication and decisive action.

Financial Interdependence

Financial management links to every aspect of a nonprofit, including governance, programs, planning and more. The key to sound financial leadership is to keep everything connected.

Nonprofit organizations impact individuals and communities by providing services, advocacy, and building community. Behind the scenes, all missions, programs and staff are supported by sound financial decisions and activities. That’s why healthy nonprofits have leaders who employ financial management practices that build stability and flexibility both now and for the future.

Whether you’re advancing from the program delivery, communications, human resources or other operational area of an organization, if you have aspirations of being a top executive, you must understand nonprofit finances.