The Flow of Money
Money flows better in an organization when there is order. Order with money implies that transactions are recorded promptly and consistently. The data is accurate, and the organization honors its agreements. Leaders have oversight, make plans, and monitor progress. When everyone in the organization understands the financial picture and focuses on what is needed to fulfill the mission, resources begin to flow more effectively.
Here are some key points to consider:
Money clarifies what resources the mission requires. Leaders who have a clear understanding of actual program and administrative costs are more effective in attracting sufficient funding for mission-specific programs.
Clarity attracts resources. Funders look for organizations that communicate their mission and values clearly and conduct business with equilibrium and integrity.
Money flows best when the organization treats it with wisdom and prudence. Financially healthy nonprofits allocate the majority of their resources to mission-driven work. The organization monitors both income and expenses and maintains sufficient cash flow to meet obligations; it operates within its means.
Planning strengthens financial stability. Each year, the organization develops a budget. Each month, the organization compares actual results to projections.
Unified principles sustain alignment. Every part of the organization follows the same guiding principles, rooted in mission and values, and their impact can be measured through financial outcomes.
Integrity protects resources. Policies and procedures ensure that employees are honest and transparent about how and where they spend money. Policies prevent conflicts of interest. There are strong internal controls to reduce the risk of fraud and misuse.
Accountability ensures donor trust. When an organization solicits funds for a specific purpose, the financial records demonstrate that every dollar was spent as promised. All expenditures are necessary and clearly justified. Funders and donors can see evidence of sound stewardship.
Components of Clear Financial Position
It is important that the organization’s leadership team relies on and uses financial information to make decisions. Accurate financial information is a shared responsibility of everyone, especially those who generate income or incur expenses. All staff receive adequate training in budgets and participate in verifying and approving financial transactions to enable the finance department to record and process them. Department directors and program managers review financial reports regularly to ensure accuracy.
Here is a list of indicators that your finance department is functioning well and can provide clarity on the organization’s financial realities:
The accounting staff generates financial reports monthly. Timely financial information provides feedback on budget-to-actual performance and other organizational-specific information.
Staff reconciles of all balance sheet items occur monthly and tie to supporting documents of account balances. Financial data is consistent and free from material discrepancies.
The accounting software is robust enough to generate the necessary reporting requirements, including compliance with funding sources, GAAP standards, local, state, and federal filings, and audit requirements.
All financial data resides within the financial software that inherently has checks and balances and does not rely on a mishmash of unrelated Excel spreadsheets that require multiple points of data entry.
The financial department consists of individuals with adequate knowledge of nonprofit accounting. The finance department’s activities reflect the organization’s stated values. The department staff is cross-trained, and leaders plan for succession.
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