Grow nonprofit mission impact through successful financial management

For many nonprofit organizations the complex task of financial management can feel like a frustrating detour on the road to achieving mission objectives.

Effective management, however, is a critical component in achieving mission objectives.

Consider the recently announced closure of Benefits Data Trust— a nonprofit that helped hundreds of thousands of Americans access government assistance for over two decades.

Initial investigations revealed no evidence of financial malfeasance.

Instead, it appears the organization was operating at a deficit in service of a good cause, but for far too long. As a result, continued operations became impossible.

The closure offers a clear message: successful nonprofit financial management is critical for mission success.

This piece explores the basics and benefits of nonprofit financial management, the advantages of financial management software, and offers real-world examples of nonprofit success.

Here’s what we’ll cover:

Understanding nonprofit financial management

Before digging into the details, it’s worth understanding what financial management means for nonprofits.

What is nonprofit financial management?

Nonprofit financial management has two primary objectives.

The first is ensuring that available financial resources can meet mission goals.

The second is ensuring that financial processes comply with regulatory and reporting standards.

In practice, nonprofit financial management includes both policies and processes.

Policies define expectations around how money is collected, monitored, managed, and used within the organization.

Processes offer specific guidance on how to implement policies.

Key components of effective financial management

Three components are critical for effective financial management:

1. Transparency

The more you know about where money comes from, where it’s going, and how it impacts mission objectives, the better.

As a result, any nonprofit financial strategy must prioritize transparency.

2. Compliance

Nonprofits are subject to federal, state, and other organizational regulations.

For example, nonprofits must comply with Generally Accepted Accounting Principles (GAAP) for financial reporting or risk losing their tax-exempt status.

3. Accountability

Accountability demonstrates a commitment to financial transparency.

As a result, nonprofits need finance leaders willing to step up and take accountability for revenue management, spending, and reporting.

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Pro tip:
Equip your finance leaders with data-driven tools to help make better decisions.

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Aligning financial goals with mission impact

Private companies exist to make a profit for owners and shareholders.

As a result, their financial goals and organizational mission are the same.

Nonprofits, meanwhile, use money to fund mission objectives.

This requires a different approach to financial management that aligns incoming revenue with outgoing community impact.

Here’s a quick example.

For-profit organization A and nonprofit organization B, each report a quarterly revenue of $250,000.

After wages, leases, utilities, and other expenses, both are left with $100,000.

Organization A invests this money in sales, marketing, and product development to drive more revenue.

If organization B spends the same way, community initiatives go underfunded.

As a result, nonprofits have an extra step in their financial management process: distributing resources across initiatives to improve mission impact.

The importance of mission-driven financial planning

Mission-driven financial planning provides a clear picture of nonprofit finances.

Because mission objectives aren’t designed to make a profit but to provide community support or individual support, ROI is measured in impact, not interest.

By understanding the total cost of initiatives and distributing income accordingly, nonprofits can avoid potential pitfalls such as overspending or underfunding.

Strategies for aligning financial goals with mission

Financial alignment doesn’t happen by accident.

Instead, it requires a strategic approach.

Strategy starts with identifying your mission objectives.

What is your organization trying to achieve, and what approaches help you succeed in your mission?

For example, if you run an nonprofit that helps local residents access government support programs, your financial priorities might include leasing and maintaining local offices where community members can seek help, hiring, and training staff to work in these offices, and providing employees and volunteers with the technology they need to file applications and track approvals.

Next is prioritizing revenue diversification.

While many nonprofits rely on donations from individuals and corporations, there may also be other options available, such as grants or loans.

Having multiple revenue sources helps reduce the impact if donors choose to reduce the amount they give, or if they stop donating altogether.

Finally, it’s worth creating mission-specific fundraising initiatives.

Consider the example above.

If your mission is to help those in need receive financial assistance, your fundraising campaigns need to clearly communicate this goal.

Campaigns should also highlight success stories and potential challenges while making it clear that your mission depends on the generosity of donors.

Given the rising number of nonprofits across the country, generic fundraising isn’t enough—initiatives must speak to your donors directly.

Benefits of financial management software

While nonprofits can manage their finances manually, this approach is time and resource-intensive.

Financial management software offers a way to streamline the process.

Key benefits include:

Real-time data and decision-making

Seamless integration with other solutions such as payroll, HR, or fundraising solutions sets the stage for real-time data collection.

Paired with intelligent analysis frameworks, nonprofits have the information they need to make data-driven decisions that improve mission outcomes.

Streamlining operations and improving efficiency

Equipped with tools such as fund accounting, grant tracking and billing, revenue recognition, and outcomes reporting, your team can better streamline finance operations.

Add in multiple location management, and nonprofits can consolidate financial data in minutes rather than weeks.

Enhancing financial transparency and accountability

Financial management software can provide customizable reports, dashboards, and visualization that provide rich insights in real time.

This helps nonprofit leaders see exactly where money is being spent, where revenue is coming from, and how current financial conditions align with mission objectives.

It also provides the data to create a compelling story from donation to mission success, to persuade current and future donors.

Implementing financial management software

Data volumes and velocities are increasing, and compliance regulations are evolving.

Financial management software helps you navigate these increasingly complex environments.

Get started with this simple framework:

Choose the right financial management software

The rise of cloud-enabled accounting has created a burgeoning market for nonprofit financial management software—but not all tools are created equal.

Look for solutions that offer nonprofit-specific functions, such as grant management and tracking, fundraising optimization, and complete transaction transparency.

Industry endorsements can also help identify best-of-breed options: for example, Sage Intacct is the only preferred financial management solution endorsed by the AICPA.

Draft a plan for deployment

With your solution selected, deployment is the next step.

Start small.

Connect cloud-based processes to on-site operations and run tests to ensure functions are working as intended.

Then, scale up deployments by giving software access to larger financial data pools.

Check to ensure that results are comprehensive and accurate before moving on to full-scale deployment.

Case studies and examples

To understand what this looks like in practice, explore two examples of success stories and lessons learned from real-world software deployments.

Success stories of nonprofits using financial management software

Using advanced financial management software, nonprofits have seen significant improvements.

Consider the Cook Inlet Tribal Council (CITC), which provides education, social, and economic services.

For years, the CITC used a combination of disjointed software solutions to manage its finances, which led to increased complexity and a lack of transparency.

After deploying Sage Intacct, the CITC was able to create customized, connected reporting procedures that help manage more than 90 grants across three subsidiaries.

Canadian nonprofit AdaptAbilities, meanwhile, struggled with manual accounting processes backed by an in-house “database” that was actually an on-site CRM.

Sage Intacct empowered AdaptAbilities to strengthen internal controls, link multiple data sources, and automate key workflows.

Lessons learned from real-world examples

The biggest takeaway from these stories?

Current solutions weren’t keeping pace with evolving financial complexity.

By implementing Sage tools that offered automated processes and customizable reports, nonprofits were able to “future-proof” their financial operations.

As the BDT closure makes clear, organizations without these tools in place can find themselves abruptly shuttering operations and leaving their mission goals unfulfilled due to a lack of insight and transparency into their own finances.

Practical tips for nonprofit leaders

Recognizing the need for financial management is one thing—effectively applying management principles at scale is another.

Best practices for financial management

Four best practices can help improve your nonprofit’s financial management.

1. Invest in education

The more your staff knows about collecting financial data, creating comprehensive reports, and ensuring regulatory compliance, the better.

As a result, it’s worth investing in education.

This could take the form of online or in-person courses or certifications and is bolstered by financial management software tools that include self-serve resources and ongoing support.

2. Dive into the details

Every aspect of your nonprofit’s revenue and spending should be scrutinized to ensure alignment with mission objectives.

While this is a tall order, it’s simplified by the use of cloud-based finance tools that let teams create customized reports and visualizations.

3. Schedule regular assessments

Nonprofit finances can change significantly over the course of months or even weeks.

Schedule regular reviews to ensure operations align with current cash flow.

4. Implement intelligent tools

Last but not least?

Streamline financial processes with intelligent tools capable of real-time data analysis and process automation.

Common challenges and how to overcome them

Despite best efforts, your nonprofit may still encounter financial challenges.

One of the most common is “mission drift”.

This occurs when resource spending moves away from mission goals.

In some cases, it is inevitable—for example, if you open a new office or hire new staff, more money is naturally required to pay rent, purchase technology, and compensate employees.

In many cases, however, mission drift happens slowly as nonprofits become more complex.

To avoid this, create and follow a regular audit schedule.

This could be every quarter or every six months, but should always include a complete review of money in, money out, and where money is going.

Another common challenge is the mismatch between income and output.

Because many nonprofits depend on donors to achieve mission goals, incoming funds are often inconsistent.

This can lead to challenges with overspending—effectively doing the right thing the wrong way.

Much like mission drift, addressing this problem requires regular review.

If teams discover that donations and grants don’t match expenditures, the next step is assessing the effectiveness of mission programs.

Higher-performing programs should stay, while lower-performers may need to be scaled back or cut temporarily.

Final thoughts

If the mission is the message, then financial management is the medium.

In other words, without comprehensive and transparent financial management, Nonprofits lose the ability to connect with communities and achieve mission goals.

To ensure objectives and operations align, nonprofit leaders benefit from the deployment of financial management software that helps them track current conditions, address potential problems, and leverage real-time data to make informed decisions.

Ready to help your nonprofit build a strong financial foundation?

Start with our free guide, The Rise of the Data-Driven Nonprofit Finance Leader.