Finance management needs of non-profits

finance management for NGOsRecently, I conducted a simple survey to find out more about the needs of smaller and bigger civil society organisations (CSOs) in the field of finance management. I received responses from people from very different organisations; bigger European organisations as well as smaller local groups, from Africa, Latin America and from former communist countries in Europe and the Caucasus.

I was interested to learn about their finance practice including the preparation of an annual financial statement; annual budgeting on organisational level; cash flow management; fundraising; and project budgeting, reporting and auditing. I am a nosy parker, yes indeed.

But I will use the input for the conceptualisation and development of online courses finance and organisational management for non profits. (The first course is foreseen to start online on 2 January 2018.) As I was quite surprised with some of the outcomes, I want to share some key findings here, too.

Project finance

Almost two thirds of respondents indicated that preparing a budget for a project, reporting on it and being audited on project level are easy for them to do. This is, in my experience, in line with the activity focus of most CSOs. They can design project activities and matching budgets, and can usually manage the funds they receive for these well and certainly well enough to not encounter big issues in project audits.

What surprised me is that 30% of the respondents indicated that making a project budget is a bit to very difficult for their organisation, while 37% found it a bit difficult to make a financial report for a project.

project budget for non-profits

Annual financial report

Around half of respondents mentioned that they are easily able to produce an annual financial report, with balance sheet and profit and loss overview. 22% of the respondents do not produce annual financial data, and 26% finds this a bit to very difficult. This is a picture I can easily recognise with my own experience. While most organisations can relatively easily prepare a profit & loss (income & expenditures) overview, most of them have difficulty understanding the balance sheet and face a real challenge in preparing this. As a result, most NGOs do not produce a balance sheet. In case it is needed, they hire an external party to prepare this.

Of course there is nothing wrong in hiring external expertise for tasks you cannot get delivered in-house. However, when it comes to finance this can be tricky. Without having some level of expertise it can be hard to understand the presentation of data, and it will be even harder to verify if this is the best way of presenting your organisation. After all, whereas the profit & loss statement shows to what extent you are capable of managing your incoming funds in a given year, the balance sheet shows the longer term financial health and stability of your organisation. A rather important picture for the management to understand fully, and to take action upon as and when needed. At the same time, it is a picture that funders and investors are interested to assess as well, before deciding on a grant or investment.

Other finance management issues

My survey shows that in general, finance management can be a challenge for non-profits. More than 20% have a little difficulty in managing cash flow. 31% find it hard to prepare an annual organisational budget, whereas 48% says it is very hard to raise all needed funds for the organisation’s activities and aims. Respondents mention they would like to learn more about how they can ensure their organisational costs are covered through a mixture of projects funded by different sources. In connection with this, several also state that they would like to see how one system can serve all different reporting needs.

fundraising for non-profits

Conclusion

This is a very much simplified and shortened summary of the valuable input I received. It confirms to me that both smaller and bigger non-profits face serious challenges in understanding finance and in getting their finances in good order. It is hard for them to plan their finance, probably in part also because of the challenges in fundraising. Once funds are available, a puzzle ensues to see how all human resource and organisational costs can be covered to the extent needed, and how all this can be reported in the right way to the different funders. In this seemingly endless ‘fight’ for acquiring the means to actually work on the set goals to change society for the better, it seems the finance management of civil society organisations is bound to be the underdog.

This is where I want to contribute: I aim to make civil society organisation’s (finance) management feel on top, enabling them to pursue their dreams in to the fullest extent possible in a sustainable manner. This is why I want to develop (online) courses for this group of professionals and volunteers, around different aspects of finance management. Practical courses, with theory and assignments and with personal feedback. If you are interested in joining, please do not hesitate to contact me or simply follow me online. In the coming weeks I will share regular updates about my plans and the upcoming courses. Save

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Do you know your value?

Value

Value

Do you know the value of your organisation or company? I am not talking about added value, or about values you have in your work. Not even about the value of the sheer existence of your organisation or company to society or clients. I am referring to ‘cold’ financial value. Do you know what you’re worth?

To give you a clue as to where to look: do you know the balance sheet of your organisation? Not by heart, but in general? Most likely, you don’t. At least in my experience of small company owners and NGOs – most of them have no idea. And in some cases they do not even produce a balance sheet at year’s end.

You may wonder what is so bad about that. Apparently, you haven’t felt a need for this to date, so why should you now?

Here is why.

If you are an NGO you may want to see whether you are building up a reserve out of small profits generated by an excess of income over expenditures. This reserve shouldn’t be too big of course – after all you are not working for profit and donors do not provide you with grants to make a profit. But a modest reserve does come in handy, even for an NGO. For instance, if you have a reserve you know that you can bridge a gap in between funder payments or possibly even a gap in between projects. Or that you can make certain investments not covered by any project grant, just because you have an amount of money available to your organisation that is not earmarked for a certain budget line. In short, a modest reserve can render your organisation more stable and can help improve sustainability of your organisation. For this reason, funders in general will not disapprove of you building up some kind of reserve as long as you are open about it and do it right.

Balance sheet

Balance sheet

You can be open about this in your annual financial statement where your balance sheet will show the size of your reserve and your profit and loss statement can show what was added to your reserve in a given year. You can also describe your organisation’s aims with the reserve: what size are you aspiring to and what is the rationale behind that? For instance, you might be looking for a reserve the size of 3 months’ operational costs so that in the event of a loss of an important grant you would have some time to start economising, downsizing, reorganising, etc.

The same is true for small companies, with as added value that having insight into your reserve may also help in case you need a bank credit or are wondering about prospects for your pension.

This is, in a nutshell, why I believe it is worthwhile to know your balance sheet value. And why you might like to invest a bit more time in your annual financial statement at the end of the year to create a balance sheet. It isn’t rocket science, but if you need assistance, do let me know!

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Finance is for Everyone

Sulaymaniyah

Sulaymaniyah

It could be construed as a cynical twist of fate that just as I left my part time job as financial manager on account of it not being my dream job I was asked to work with a Kurdish NGO in Iraq on their financial management. But in fact it turned out that this assignment combined two things I love: working with people and helping an NGO improve its effectiveness.

For NGOs proper financial management and administration is crucial for their survival in the long run. Everyone – well, almost everyone – can probably get that first nice grant to do a good thing for society. The trick is to keep the money coming in and to ensure that it contributes to the sustainability of the organisation. Of course you need great ideas and a brilliant fundraiser annex networker, but that is never going to be enough if the organisation cannot deliver on the expectations raised with the funder or the private donator.

And delivery is not just the realisation of perfectly implemented activities.

Good delivery includes getting the financial management and administration right, too.

  • Spending as planned combined with being able to justify changes.
  • Spending according to the requirements and conditions of the funder combined with being able to prove it.
  • Ensuring that, without becoming profit-based, the organisation does not in fact incur losses (for instance by not being able to cover costs of work done by the own staff for the realisation of the funded activities).

Underpinning the above are proper budgeting and proper internal procedures.

And that is where we get to the notion that financial management is – or should be – everyone’s job. After all, for proper budgeting the person making the budgets needs to be aware of the situation on the ground, the experiences of the project manager when spending the money and the time need to be taken into account. And there needs to be a match between the budget and the proposal and the donor requirements and conditions: enter the fundraiser annex networker. Without engagement and commitment of everyone the budget will not be realistic, feasible, convincing and in line with donor specifications. Inevitably, this will lead to problems in the implementation phase and in the reporting.

The same is true for procedures. Everyone should be committed to these as they form the basis for the organisation’s capacity for accountability.

Commitment needs understanding: why are these procedures in place, what do they aim to achieve or avoid? Why are they important? Everyone – yes, me too – knows that procedures can slow things down, make things more complicated than seems necessary and consume time that you’d rather spend on something ‘real’. Can we not get that signature later? Why make a contract when everything is clearly agreed? Who invented time sheets anyway?

The trick is to find a way to make everyone see that following procedures is part of their job and part of their responsibility to the organisation and its credibility and accountability. And thus in the long term its sustainability.

Financial Management Opportunities

Financial Management Opportunities

As you can see from the above Spiderscribe picture, I was lucky in that department. My group had clear ideas about what improved financial management could contribute to and what the work together could help achieve.

Steps in a financial process

Steps in a financial process

In the first session of the face-to-face part of the assignment, we identified current procedures and everybody’s role in the different steps taken. The main conclusion was that it should be a team effort and that intensive and regular communication and exchange was needed.

Of course this commitment does not mean that everything will from that moment of insight onward be clear-cut and smooth sailing. There will always be hiccups and challenges and things that do not go as planned or agreed. But once everyone is aware of their own contribution to the whole and is aware of what is needed by their colleagues and by the  organisation, you stand a good chance of overcoming the challenges you may meet along the road.

Result of a joint effort

One of the results of the assignment

Of course we did much more than just conclude that team work was needed. We also worked on accrual logic, budgeting, bookkeeping, etc. etc. And after the face-to-face training we continued working online on these topics. If you are interested in working with me on improving financial management in your organisation, please do not hesitate to contact me!

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