Although some nonprofits find operating on a shoestring to be “business as usual,” it’s in the best interest of the organization and its mission to have a sound financial strategy in place. Donors increasingly want to know how all sources of capital are allocated and spent. To ensure long-term viability, board members and executive leaders can conduct an appraisal to determine if adjustments should be made to better align the organization’s financial strategy to its mission. The steps in this process may include:

  • Review the mission statement – Making sure the nonprofit is allocating its funding according to its intended purpose and priorities should be the first step in the alignment process. Some nonprofits drift from their core mission over time or suffer from “mission creep.” The needs of the community being served may change and shift the nonprofit’s focus and resources. Large gifts from donors also can skew how funds are spent.
  • Analyze the organization’s budget and operating efficiency. Established programs should be analyzed from a financial perspective. Are funds being allocated according to the expressed purpose and values of the nonprofit? Are projects staffed appropriately? Are expenses reviewed regularly to ensure the organization is not wasting its money?
  • Evaluate assets and the investment policy statement. Are the endowment fund, grants and other pools of capital being used most effectively? Are investment options providing desired results, or should an analysis and review be performed? Can some sources of capital be allocated differently for better outcomes? How are unrestricted gifts being used?
  • Consider whether funding should be transitioned. If certain investments, grants or gifts no longer fit the mission, they should be marked for board discussion and possible transition. It may help to have discussions with donors or grantmakers to discuss the mismatch and find ways to reallocate funds to the organization’s higher priorities. Similarly, if a project is no longer aligned with the organization’s mission, consider winding down the program and reassigning staff.
  • Evaluate plans for long-term success. Is there an endowment or capital reserve fund established that could cover up to 12 months of operations? If not, what plans are in place to grow such a fund? Have donors been approached about contributing to a fund to ensure the organization’s continuity?
  • Review the fundraising strategy. Fundraising remains the major source of capital for nonprofits and some adjustments may be needed to address shortfalls in the financial plan. Stepping up fundraising efforts may help establish a capital reserve or enable the organization to move quickly on new opportunities.

The steps listed above may seem rigorous, but they can help board members and senior executives in having proper financial support for the nonprofit’s programs and services. Board members who have successfully helped other nonprofits address these issues can be instrumental in leading these efforts. They also can bring in specialists and advisors to support these efforts as the organization strives to achieve its mission, today and well into the future.

Need help determining your nonprofit’s financial strategy and mission? Please contact your ALL advisor or call us at 617-738-5200.

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