How non-profit finance teams can reduce complexity and thrive
Discover how to reduce financial complexity, so you can focus on strategic work aligned to your non-profit organisation.
Are you facing the challenges many non-profit finance teams have with money?
In today’s world of donor accountability, it’s more important than ever to account for the money you raise and spend.
In this article, we’ll look at cloud-based platforms that provide easy access to real-time data across all functional areas of your non-profit organisation: HR, accounting, payroll and operations management.
But first, we’ll examine why you need to reduce non-profit financial complexity, so you can focus on strategic work aligned to your non-profit rather than tedious, manual day-to-day financial admin tasks.
Here’s what we cover in this article:
- Understanding non-profit financial complexity
- Define your goals
- Hire the right people
- Increase visibility
- Be active with reporting and analytics
- Compliance matters
- Keep it simple, and don’t be afraid to invest in technology
- Collaborate and scale with the power of automation
- The future of non-profit finance is bright
Understanding non-profit financial complexity
What is financial complexity?
Financial complexity measures how much work is required to maintain your financial system. For instance, how difficult is it for staff and board members to understand, monitor and report on your non-profit’s finances?
The more accounts, transactions, and reports in your system, the more complex it will be.
Why do you need to reduce financial complexity?
Non-profits are under increasing pressure to show results. The best way to overcome this is by reducing financial complexity and focusing on the core activities that make you successful.
The complexity of your financial operations can be a barrier to achieving results, making it difficult for you or others at your non-profit to track and report on progress toward achieving your desired outcomes.
It may also increase the possibility of mismanagement or fraud, as well as an inefficient use of resources.
Focus on your mission, not your accounting
As a non-profit, your primary focus will be to help others.
However, when you get bogged down with complex financial systems and reporting requirements, it can be easy for the focus on helping others to slip away. You can become so focused on navigating your finances that you lose sight of your original goals.
Members of your team might worry about not having enough time or resources while causing frustration among board members who feel they’re not receiving accurate information about how well (or poorly) things are going.
Define your goals
For non-profits, focusing on the bigger picture is key to success. Clear and measurable goals make it easier to make informed decisions that drive your objectives.
Before fixing your finances, you might have to define your goals. This will help you determine how to allocate and use resources effectively. Make them SMART: Specific, Measurable, Achievable, Relevant, and Timebound.
Let’s take the example of increasing donor engagement.
A goal should be specific, such as “Increase the number of donors who participate in our volunteer events by 20% within the next six months”.
It should also be measurable to track progress and determine success.
The goal should be achievable, with a clear plan for how your team will work towards this objective. It should also be relevant for your non-profit, as increasing donor engagement can increase donations and build a stronger relationship with your supporters.
If your goal is to increase donations, it’s important to understand why people should donate to your non-profit.
Instead of simply aiming for a 10% increase in donations, consider building a strong case for why people should support your cause and what impact their donations will have on the community you serve.
This way, when it comes time to increase donations, you’ll have a solid foundation to work from.
Hire the right people
Hiring the right people to handle finances for your non-profit is one of the most important things you can do to ensure success.
It’s also one of the hardest, especially when trying to find someone who fits into your culture and is well-suited for their role.
Ask questions like:
- Does this person fit in with the culture of our organisation?
- Do they share our values?
- Are they excited about what we’re doing?
- Will they be happy here?
- Do they have experience working at a non-profit, or are they enthusiastic about working for one?
- Is this person qualified for the role?
- Do they have all the skills needed for success on day one–and beyond that?
- How much training will be required before they can start contributing meaningfully toward company goals
- Am I willing/able financially support such training costs upfront if necessary (or over time)?
With goals and people in place, you’re in a better position to tackle financial complexity.
One big issue is a lack of visibility, making it challenging for your non-profit to keep track of your financial performance, monitor spending, and make informed decisions.
We spoke to non-profit leader Justin Donne, a Trustee and Chairman of the Board at Autistic Nottingham.
Justin says: “One of the most common challenges for a non-profit is reporting and visibility of funds. This can be especially difficult if you receive funds from various sources. You depend on donations, grants, and other sources of funding, which can be hard to keep track of.
“Without clear visibility of funds, it can be difficult to manage and allocate them appropriately. Let’s not forget donors and funders want to see their donations properly used.”
With limited resources and staff, many non-profits rely on manual processes and legacy software systems that can be time-consuming and difficult to use.
Managing funds is a challenge that all non-profit finance teams face.
To combat that, create a detailed budget and financial plan outlining how funds will be allocated and used. This will help ensure you spend funds effectively and clearly understand where the money is going.
You rely on donations, grants, and other funding sources, therefore you need to manage these funds in a way that maximises the impact of your work. You need to accurately track expenses and donations, ensuring you use funds in the most effective way possible.
Justin says: “It can be difficult to keep track of all the different funding sources and ensure you use them appropriately.
“Use your funds efficiently and meet all necessary regulations and compliance requirements. This can be a time-consuming process, but it is essential.”
Tim Doman is an investment analyst, ex-executive of a private equity investment fund, and the owner and CEO of Top Mobile Banks.
He points out that managing funds for non-profits is particularly challenging because you may work with limited resources.
Tim says: “With a limited budget and often multiple funding sources, non-profits must carefully manage their finances to ensure they are using funds effectively and efficiently.
“This can be especially difficult when dealing with complex regulations and reporting requirements, which can add to the already significant workload.”
Be active with reporting and analytics
The non-profit finance team has a unique opportunity to be proactive with reporting and analytics.
Donors will be more likely to give funds to non-profits that are transparent about how they spend their money, so you should make sure you’re able to answer any relevant questions for them at any time.
Using data to identify trends and opportunities is also important. It allows you to see what’s working, what isn’t, and where the opportunities are.
For example, if most of your donors come from one specific area of town or regionally, you should investigate expanding your reach outside this area.
This could mean finding new ways of reaching out through social media or other channels where people outside this location might also see your actions.
Or it could even mean launching a separate fundraising campaign targeting different demographics.
Room to Read is a non-profit that aims to educate children by teaching literacy in the first and second grades through government schools in low-income countries.
Room to Read CFO Shari Freeman told Diginomica that the non-profit could move its India office fully on to cloud accounting and financial management software, which helped keep donors happy as it allowed the team to report granular numbers.
She said: “I think the biggest change for us as an organisation going to [Sage] Intacct was our ability to deliver against our general reporting.
“We went from average cost, from peanut butter kinds of reports to very specific, transparent, ‘This is what you gave us money for; this is where we spent it, and this is how we spent it.’ We can do that across any country, in any way.
“That has resulted in an unbelievable shift in the kind of donations we’ve received. Our bread and butter were the $35,000 and $40,000 gifts. We get many eight-figure donations now.”
We’ll talk a little more about other benefits of using financial cloud software later in this article.
Non-profits must comply with various laws and regulations to maintain their non-profit status.
These include laws related to taxes, financial disclosures, and other regulations. Non-profit finance teams must be knowledgeable about these regulations and be able to ensure that they are compliant.
Justin Donne says you need access to detailed reports that show where funds are coming from, how you are using them, and how much is available.
He says: “Non-profits must adhere to strict reporting requirements to maintain their non-profit status.
“This means providing detailed reports to the IRS, state tax authorities in the USA, HMRC, Charities Commission, Companies House in the UK, or other agencies in other countries.
“Non-profit finance teams must be able to provide accurate and timely reports to ensure compliance with all regulations.”
Tim Doman points out that failing to comply with these regulations can result in significant fines and legal consequences.
He says: “Non-profit finance teams must have a clear understanding of the regulations they must comply with and the reporting requirements they must meet.”
Keep it simple, and don’t be afraid to invest in technology
Once you understand your problems, think about how technology can help you fix issues like poor visibility and help you manage funds, reporting, and compliance.
You’ll want to bring in anything that makes it simpler for your non-profit team, stakeholders, and donors.
Cloud-based financial software is a great option. It’s easy to use, secure and accessible from anywhere. It can provide a centralised platform for managing funds, which can help non-profits to allocate resources more effectively and monitor their spending.
Non-profits should focus on their mission rather than worrying about financial details when it comes to technology investment, and cloud-based software offers an excellent opportunity to simplify your organisation’s finances while still maintaining control over sensitive data such as donor information.
Alastair Hazell, entrepreneur and founder of the Calculator Site, says: “One of the key benefits of cloud finance solutions is that they provide real-time visibility into financial data, making it easier for non-profit finance teams to track and manage funds effectively.
“Another benefit of cloud finance solutions is that they are scalable and flexible, which is important for non-profit organisations that may need to accommodate changing needs and demands.
“Cloud finance solutions provide secure, remote access to financial data, making it easier for non-profit finance teams to collaborate and work together, regardless of location.”
Collaborate and scale with the power of automation
By automating many manual processes and eliminating the need for paper-based record-keeping, cloud finance solutions can help non-profits reduce errors, minimise the risk of fraud, and ensure you meet all necessary regulations and reporting requirements.
Automation is a great way to free up staff time and allow them to focus on strategic work. This can help you improve efficiency, reduce cost, and increase work capacity.
Automate those tedious financial tasks where you can. This includes anything from payroll and accounting to donor tracking, fundraising, and reporting. The more you reduce complexity and free up staff time for strategic work, the better off you’ll be.
Automation can even help your marketing efforts by making it easier for people to donate or share content with their networks through tools like web forms, email campaigns, landing pages, social media posts, and more.
Tim Doman says: “Cloud finance solutions can help non-profit finance teams save time and focus on more important tasks by automating many manual processes. It eliminates the need for paper-based record-keeping.”
Effectively managing finances can be a daunting challenge for non-profit organisations. However, by embracing cloud-based finance solutions, you can overcome these obstacles and ensure compliance.
However, Justin Donne says that your non-profit may still want to consult with a financial expert or accountant to ensure you use funds in compliance with all relevant regulations.
He says: “At Autistic Nottingham, we employ a professional accounting firm to audit our books each year and do the filing for us. This virtually guarantees compliance and proper reporting.”
The future of non-profit finance is bright
Non-profits are rethinking how to make financial management simpler for themselves and their donors. The result? Less time spent tackling financial complexity and more time spent focusing on their mission.
The future of non-profit finance is bright. The industry is evolving and becoming more innovative. Thrive in this new landscape by taking advantage of new tools and systems today.
Recommended Next Read
How to find angel investors for your business
Subscribe to the Sage Advice newsletter
Join more than 500,000 UK readers and get the best business admin strategies and tactics, as well as actionable advice to help your company thrive, in your inbox every month.
Ask the author a question or share your advice